VAT Relief (Talking Newspaper Associations)
(9 years, 10 months ago)
Commons ChamberRead Hansard Text Read Debate Ministerial Extracts
Iain Stewart (Milton Keynes South) (Con)
I am grateful for the opportunity to raise the subject of VAT relief for talking newspapers. For the convenience of Members who may not be familiar with the concept of a talking newspaper, let me begin by explaining what they are and the important service that they provide to people who are blind or partially sighted, or who have some other disability that makes reading a newspaper difficult. There are 500 talking newspapers in the UK and Isle of Man. By and large they are small charities where a group of volunteers will read the contents of a local newspaper on to a cassette, CD or digital recording device. Those are then posted to registered listeners who listen to the recording and return the cassette or CD to the talking newspaper association in time for it to prepare the next edition, usually on a weekly basis.
It is important to emphasise the small, local and charitable nature of these associations. On average, each talking newspaper has 130 listeners and 34 volunteers, and they should not be confused with larger, national organisations that provide an excellent service of national newspapers, magazines and books for people who are registered blind or partially sighted. Their services are provided free of charge and they rely on small-scale local fundraising and grants to provide an income to cover the recording and distribution equipment and running costs.
I should also declare a family interest in this subject. More than 30 years ago, my father—Jim Stewart—and a small group of helpers set up the Hamilton Sound talking newspaper in the town in Scotland in which I grew up. He is still chairman of that today, and more than three decades later over 1,000 editions of the talking newspaper have been produced. I know that its listeners—a couple of hundred or so on average—have greatly valued the service. While national news can easily be accessed by a number of means, it is not always easy for people who are blind or partially sighted to obtain the local news that a local newspaper can provide.
I salute the work that volunteers up and down the country do in their communities to help often vulnerable people keep in contact with the outside world, and in this debate I wish to seek clarification and an update of the VAT rules that affect talking newspapers. For some time, talking newspapers have rightly been able to benefit from some financial assistance in providing their service—for example, they do not have to pay postal charges for the issuing or return of their products. In the 1986 Budget the then Chancellor, Lord Lawson, announced a number of VAT reliefs for charities. That included relieving charities from VAT on
“all recording equipment for talking books and newspapers used by charities for the blind”—[Official Report, 18 March 1986; Vol. 112, c. 178.]
After the 1992 Budget, the then Chancellor, Lord Lamont, extended the relief available to include
“repairs and maintenance of equipment used for talking books.”
The most recent guidance from Her Majesty’s Revenue and Customs—notice 701/1 from May this year—states:
“Charities and voluntary bodies caring for the blind and the severely visually impaired can obtain zero-rating for purchases of sound recording and reproduction equipment (or parts and accessories for such equipment) that has been designed or specially adapted for recording or reproducing speech for the benefit of such persons. In the case of reproduction equipment, zero-rating will not apply where the equipment is available for use by anyone other than the blind or severely visually impaired. The zero-rating also covers radios and cassette recorders purchased by charities for free loan to the blind, and the repair or maintenance of any equipment mentioned in this paragraph.”
There is, however, considerable confusion in the talking newspaper community about what is and what is not eligible for VAT relief. Part of that stems from the fact that the technology used by talking newspapers has changed considerably since the original VAT exemption in the 1980s and 1990s. At that time, an original tape recording of the edition was made and copied on to audio cassettes by a high-speed copier. Now, although a minority of talking newspapers still use that traditional method, approximately 80% produce digital recordings.
The confusion stems from the part of the guidance which states that
“zero-rating will not apply where the equipment is available for use by anyone other than the blind or severely visually impaired”.
The onus is on the manufacturer or supplier to come to an agreement with HMRC that the product is designed specifically for blind and partially sighted people. When purchasing sound equipment from a company, the talking newspaper must supply the company with a declaration for the benefit of Customs and Excise, stating that the equipment is exempt from VAT. The problem is that talking newspapers now use equipment such as computers, digital copiers, memory sticks and memory stick players that can be used by the general public and other businesses, and therefore attract VAT. Talking newspaper associations are finding that many companies are not willing to risk applying for a VAT exemption on those products. I received a number of comments from talking newspapers ahead of this debate, and a remark by Bob Finch of Colchester talking newspaper neatly summarises the point:
“Most suppliers just charge the VAT to cover their own backs. I am aware that Kings Audio and Laplock Technology are both selling their versions of memory stick players VAT free, having apparently convinced HMRC that these particular items are only ever going to be used by visually impaired people. I applaud them for doing that, but any other items they or other suppliers sell are charged because they could be used by non-disabled people.”
It is clear that many talking newspaper associations in the country are having to meet a VAT cost that they should not have to meet, given the spirit of the 1986 and 1992 measures, and it is a significant extra cost for what are often very small charities. Brian Sharp of the Forth Valley talking newspaper association told me:
“We have recently transferred all our listeners on to USB memory sticks from both cassette tapes and CDs. The total cost of the project was £11,542 which included £1,247 in VAT”.
Roughly £1,250 is small change for the Treasury but a hugely significant cost for the charity.
There is certainly an appetite in the talking newspaper community for a clarification of current VAT rules, and an updating of them to ensure that the spirit of the original provisions is reflected in new technology that talking newspapers increasingly use. I heard from Janelle Scotland, chair of the Association of Scottish Talking Newspapers, that advice on the matter from local HMRC offices around the country seems to vary, which adds to the confusion. Such a move would be supported by the Royal National Institute of Blind People, which stated:
“Advances in technology mean that most talking newspaper associations are no longer using the kinds of equipment that have historically been VAT exempt; the RNIB urges HM Treasury to extend VAT relief to cover the digital equipment now used to produce talking newspapers.”
I accept that there will always be a risk that VAT-free digital equipment could be misused, but we are talking about a comparatively small number of listeners in the country and a small number of associations. Would it not be acceptable for them to complete a VAT exemption per purchase of equipment outlining the proposed use? Under current postal arrangements the Royal Mail trusts talking newspaper associations to send mail free under the articles for the blind scheme only to blind or partially sighted people, but it reserves the right to carry out spot-checks to ensure that an association is adhering to the regulations. Could HMRC do something similar?
Another possible solution would be to allow talking newspapers to claim back VAT retrospectively. A potential problem is that many talking newspapers will not be VAT registered as their turnover falls way below the threshold, but surely some special arrangements could be made. Perhaps it could be done collectively through the national talking newspaper bodies in Scotland, England and other parts of the United Kingdom, rather than via each individual association.
At the very least, may I ask my hon. Friend to facilitate a meeting between herself, HMRC and representatives of talking newspapers associations to clarify both the current law and what items of equipment are and are not exempt? It is a muddle at the moment and most talking newspapers are small charities whose volunteers are not necessarily well-versed in the intricacies of fiscal policy. I received another good comment from Rob Pearman, from St Albans & District talking newspaper. He wrote:
“It is a problem when some of us are scared of HMRC and we do not actually feel secure on all aspects of the laws and regulations with which we have to struggle. As a child I went to a school where the school rules were headed ‘Ignorance of these rules shall not be taken as an excuse - it haunts me to this day!’”
If a change in the law is required to update the current regulations, I would like the Minister to take this as an early submission for the autumn statement and next year’s Budget. I very much doubt it would incur a significant cost to the Exchequer to bring the regulations up to speed in the original spirit. I am grateful to have had this opportunity to raise an issue that is of considerable concern to these wonderful charities that provide a valuable and much cherished service to some of the most vulnerable members of our communities.
The Economic Secretary to the Treasury (Andrea Leadsom)
I am grateful for the opportunity to speak in this debate. I would like to start by congratulating my hon. Friend the Member for Milton Keynes South (Iain Stewart) on his kindness and generosity in securing this Adjournment debate on a very important area of support for people who are vulnerable by virtue of being visually impaired. It is very important that we do all we can to support them. The Exchequer Secretary would normally respond to a debate on VAT. I am speaking on his behalf, but I will do my best to answer my hon. Friend’s questions.
The Government value the important contribution talking newspaper associations make to ensure that blind and severely disabled people can independently remain informed and up to date on current affairs. On the issue of tax itself, I reassure hon. Members that charities are at the heart of the Government’s ambition to build the big society, enabling people to play an active role in their community. To help support this, the Government provide support for charities primarily through more than £4 billion a year in tax reliefs, of which VAT relief makes up £300 million.
Reliefs from VAT are strictly limited under EU law. As hon. Members may know, when the UK joined the European Community in 1973 we successfully negotiated to keep our existing zero rates on items such as children’s clothing, most foods and physical books, newspapers and journals—a derogation from which most other member states do not benefit. Two zero rates of VAT are relevant to talking newspapers. First, a zero rate of VAT is applied to talking books and newspapers for the blind. However, this zero rate is limited strictly to specifically adapted magnetic tape and apparatus designed to reproduce speech for the blind and severely disabled people in our community. Many talking books and newspapers for the blind, as my hon. Friend pointed out, are no longer produced on magnetic tapes and so this relief cannot apply to them. EU VAT rules do not permit member states to extend the scope of existing VAT reliefs or to introduce new ones. As such, it is not possible to amend this zero rate to include talking newspapers that are not on magnetic tape.
My hon. Friend asked whether we can just change that. The European Commission is undertaking a review, including a public consultation, of member states’ application of reduced VAT rates. Among other matters, it is looking into the principle that similar goods and services should be subject to the same VAT rate, and that progress in technology should be taken into account in this respect so that the challenge of convergence between the online and the physical environment is addressed. This principle is regarded as an openness to consider a reduced rate for goods and services such as e-books and newspapers. However, if the Commission did decide to take this view, article 98(2) of the EU VAT directive, which currently excludes electronically supplied services from a reduced rate of VAT, would need to be removed. As most talking books and newspapers now use mainstream technology, I have to tell my hon. Friend that they cannot easily be distinguished from other sound reproduction equipment that is used by the general public. Talking books and newspapers for the general public do not benefit from a VAT relief and therefore attract the standard rate of VAT.
The EU has challenged and commenced infraction proceedings where it has identified member states that have allowed reduced rates, including zero rates, on general purpose products, or where they have extended existing reliefs to include them. However, the Government considered that it was important to ensure that talking books and newspapers for blind and disabled people continued to benefit from a VAT relief. Her Majesty’s Revenue and Customs therefore reviewed the legislation and considers that talking books for the blind could come under an alternative zero rate of VAT: group 12(2)(g) in schedule 8 to the UK Value Added Tax Act 1994, under relief for aids for the handicapped. The zero rate of VAT applies to talking newspapers and books if: they are supplied to a blind or disabled person for their personal or domestic use; or if they are supplied by a charity that makes them available for such use by blind or disabled people. This relief applies to items of equipment such as CDs and memory sticks for books and newspapers that are designed solely for use by a handicapped person. This relief is limited to supplies of physical goods and cannot be extended to downloaded newspapers where the supply is a digital service. This is, as I said, because article 98(2) of the EU VAT directive specifically excludes “electronically supplied services” from a reduced or zero rate of VAT.
Turning now to the progress in technology and electronic newspapers more broadly, EU VAT law does allow member states to implement reduced rates of VAT of no less than 5% for certain goods and services listed in annexe 3 of the EU VAT directive, at the discretion of the member states.
One of those reliefs is the supply of books on all physical means of support, newspapers and periodicals other than material wholly or predominantly devoted to advertising. This may sound like it should include electronic newspapers, but, as I mentioned, the EU VAT directive specifically excludes electronically supplied services from the reduced rates of VAT. This means that, where talking newspapers do not fall under the zero rate of VAT as an aid for a disabled person, the UK charges the standard rate of VAT, at 20%, on electronic newspapers and the zero rate of VAT on physical newspapers.
On the related and very important topic of electronic or e-books, many Members will probably be aware that, since 2011, France and Luxembourg have chosen to levy a reduced rate of VAT of 7% and 3% respectively to bring them in line with their VAT rates on physical books. This is creating competitive distortions to economic operators in other member states, and there has been pressure from the industry for the UK to reduce its VAT rate on e-books alongside them. The EU Commission, however, has begun European Court of Justice infraction proceedings against France and Luxembourg and has formally instructed them to apply their standard VAT rates to supplies of e-books. If the UK were to reduce or zero rate e-newspapers, it is extremely likely that we, too, would be infracted.
Furthermore, reducing the rate of VAT on e-books or e-newspapers would be likely to create borderline issues in the wider electronic services market because problems of definition could lead to a widening of the relief through legal challenge and industry changes. This would put revenue at risk in the UK market, which is currently worth over £2.5 billion a year.
The Government remain firmly committed to our ability to maintain the UK’s existing zero rates as we recognise their importance for social reasons. EU law does not permit member states to extend the scope of existing VAT reliefs or introduce new ones. Zero rating all talking newspapers that might be used by the general public, as well as by blind or disabled people, would be an extension of the relief. The EU Commission’s position is clear that talking newspapers, which do not fall under the existing zero rate of VAT, attract the standard rate, as they are electronically supplied services. The UK’s rates of VAT on talking newspapers are therefore in line with EU law and there is no intention to change that, other than in tandem with the Commission’s own review that I mentioned.
I hope that my hon. Friend the Member for Milton Keynes South will now have more clarity about when the zero rate of VAT can be applied to talking newspapers for blind and disabled people, and that he and other hon. Members will be reassured that we support the sector and that we will continue to do everything we can to support it.
Question put and agreed to.