VAT and digital products (contain your excitement)

If you haven’t already read Patrick Smith’s piece for Media Briefing on VAT for digital products, then you should. How the HMRC applies its VAT rules has the potential to leave publishing companies with large unexpected costs.

Basically, print product is zero-rated for VAT (not ’exempt’ – more on that later) which means that publishers are not collecting tax on copy sales and subscriptions. Digital product is VATable at 20% (for goods serviced from the UK) so any app sales, paywall charges, online subscriptions etc should have VAT applied.

(There is discussion among publishers as to whether digital facsimile editions incur VAT. Zinio add the tax onto its customer charges, others don’t. My belief is that these sales are VATable, but you’d be well advised to try to find a definitive answer.)

As Patrick points out, the big issue comes over the bundling of print and digital subs – basically, the digital part of the sub incurs VAT, which you must specify and