Most of you will be aware that most reading material, such as newspapers and paperbacks are zero-rated for VAT, but what exactly makes printed material a book? This was a question posed at two recent tax tribunals, when HMRC attempted to prove that in some circumstances a book may not be a book, but a personalised product that should be standard-rated for VAT at 20%.
Case #1 – Photo books
I have no doubt that all of you have seen an advert on TV or on your phone, for one of the many firms that advertise personalised ‘photobooks’ using the customer’s own pictures which are edited into a quality photograph album, with probably the most well-known being Vistaprint, Picsme and Popsa.
The question to be answered is whether or not the typical £20 plus charge for a photo-book makes it liable to 20% VAT, on the basis that you are paying for a personalised professional print of your photographs? Alternatively, are you buying a personalised book that is liable to 0% VAT. Luckily for Popsa et al, they were saved the expenses of going to court because HMRC-VAT first trained their guns on the Harriers Group
Harriers are a long-established company that produce a range of personalised products from prints, calendars, mugs and wall art through to bespoke custom ranges, most of which are charged out at the standard rate of VAT of 20%.
Harriers readily accepted that the majority of their products range, such as personalised mugs, were clearly standard rated and charged as such. However, HMRC considered that their range of bespoke photo-books should also be liable to a 20% VAT charge as what was supplied to the customer was not just a book, but that the book was a minor part of a personalised specialist service and standard rated.
Ultimately The tribunal decided that photo-books were indeed books in law and dismissed the Revenue’s argument that a photo book was ancillary to a supply of services. In light of the decision, the taxman says a photo book will only qualify for zero rating, if it meets the following requirements:
- The ‘book’ must have a minimum of several pages (rather unhelpfully the ‘minimum’ number is not specified)
- Has a cover stiffer than its pages
- It must be bound
- It must be designed to be read or at least ‘looked at’
Case #2 – Ghostwritten books
In this, the latest tax tribunal, a book publisher (Stony Terrace Ltd) was targeted by HMRC in a VAT dispute over whether or not customers buying a personalised ghostwritten book, should be charged 20% VAT on the basis that they were buying a service or whether Stony Terrace were correct in zero-rating the book, even though the ghost-writing element was by far the biggest part of the fee charged.
Story Terrace Ltd produces bespoke autobiographical books, based on the idea of preserving family history in a tangible form to be shared and passed down within the family. Customers are interviewed by a professional ghostwriter, with the resulting manuscript edited, designed and printed as a high-quality hardback book, of which four copies are supplied.
HMRC argued that as the personalised ghost-writing service was by far the biggest cost element in producing the book, it meant that the overall supply (of the book) should be standard rated at 20%.
Story Terrace counter-argued that HMRC were missing the point and that ‘the supply’ from the perspective of the customer, was the production of a physical book, which is zero-rated for VAT. They further argued that all costs in producing that book, whether it be the ghostwriter’s charge or the cost of printing, did not alter the fact that at the end of the day, the customer was buying a book.
The tax tribunal chair agreed with Stony Terrace and said that the fact that many individual elements would be standard-rated if supplied individually, did not prevent the overall supply from being zero-rated and neither did the bespoke nature of the product.
The FTT decision on finding in favour of Stony Terrace, meant that HMRC’s arguments that customisation automatically shifts the supply of a book into standard-rated territory, were incorrect. It was also interesting to note that the FTT’s decision was partly based on the precedent created by the earlier Harris Group tribunal decision.
Accountant’s view
Having researched the above cases, I was left with the recurring thought of when, if ever, will the VAT Office ever learn from past mistakes. It should have been abundantly clear to those bozos in their legal section, that the precedent set by the Harriers decision was applicable to Stony Terrace Ltd as well.
Once again, we have a scenario in which HMRC took a case to court, that they were always destined to lose, and once again wasting a significant amount of taxpayers’ money.
