Budget 2020: reading tax axed and business rates abolished for year
Chancellor Rishi Sunak has abolished VAT on e-books, dubbed the “reading tax”, alongside halting business rates on small businesses for a year.
In his budget speech yesterday (11th March), Sunak said VAT would be scrapped on digital books, newspapers and magazines from 1st December. It remains unclear whether the lifting of the tax extends to audiobooks.
Sunak told the Commons: “Digital publications are subject to VAT. That can’t be right. So today I’m abolishing the Reading Tax. From the 1st December, just in time for Christmas, books, newspapers, magazines or academic journals, however they are read, will have no VAT charge whatsoever.”
Getting in a dig at the opposition, he added: “There will be no VAT on historical fiction by Hilary Mantel, manuals or textbooks like Gray’s Anatomy, or indeed works of fantasy like John McDonnell’s Economics for the Many.”
Elsewhere in the Budget, measures to alleviate the impact of the coronavirus dominated, with Sunak taking the “exceptional step” to abolish business rates this year for firms with a rateable value below £51,000.
Businesses not currently eligible for rates relief will get a £3,000 one off grant. The chancellor also promised a formal review of the business rates scheme this autumn.
Although not mentioned in the Budget speech, the Government quietly announced it would be bringing in a digital service tax for tech giants like Amazon.
A 2% tax on online revenues made in the UK by search engines, social media services and online marketplaces will begin on 1st April this year.
The move to scrap VAT on digital items, which does not appear to include audiobooks, follows the long-running Axe The Reading Tax campaign by the Publishers Association, which claims the imposition of a 20% charge is a barrier to reading and an unfair tax on knowledge.
Stephen Lotinga, c.e.o. of the Publishers Association, said :“We are delighted that the Government has decided to zero-rate VAT on digital books and journals in the Budget. It’s fantastic that the Chancellor has acknowledged the value of reading. The decision to axe the reading tax will bring an end to the illogical and unfair tax on those who need or prefer to read digitally and should contribute to an increase in literacy in the UK. We want to thank all the parliamentarians, organisations and individuals who have supported this campaign and helped make the case for change – we look forward to continuing the important work of making reading accessible for all.”
The Economic & Financial Affairs Council, part of the Council of the European Union, changed the law in 2018 to allow member states to reduce VAT on e-books. Many countries had introduced the change but the UK had not followed suit until now.
Jasper Joffe, who runs e-book publisher Joffe Books, said his team were celebrating the news with doughnuts. He said: “It’s brilliant news for us and all publishers, and puts e-books on a level playing field with paperbacks, finally. It doesn’t matter which format people read in and finally that’s been recognised.”
Amanda Ridout, founder and c.e.o. of Boldwood Books, said she was “delighted” by the news. She added: “This is a very welcome but belated recognition that e-reading is simply an additional and growing way of consuming content and puts it on a level playing field with reading a physical print edition. Removing the tax means that authors, publishers and retailers should benefit and we hope it will provide an added filip to book sales in 2021.”
Laura Jones, founder of 404 Ink, described the move as a “win-win”. She said: “The scrapping of VAT on ebooks greatly opens up the direct sales potential for 404 Ink which is a notable slice of income for us. We initially launched with our ebooks available for sale directly to customers via our website but had to cease once we hit the £85k turnover tax threshold as our site cannot accommodate different products of different VAT amounts. Now, from 1st December 2020 onwards, we’ll be able to reinstate these ebooks and work towards different, innovative sales models for both print and ebook and, ideally, bring in more royalties for our authors while making their books more accessible to readers. It’s a win-win-win for us and hopefully for other small indies with quickly adaptable business and sales models who can exploit this opportunity to its fullest for the benefit of many.”
However, Laura McCormack, head of policy and public affairs at the Booksellers Association, warned the move risked boosting Amazon without achieving much else.
She said: “The BA, on behalf of its members, can’t help but be somewhat disappointed by the removal of VAT on digital products at this point, given the vexed state of the UK high street. We remain unconvinced where the current consumer harm is in e-book pricing, or where the consumer benefit is going to come from.
“Looking at Amazon’s current two bestsellers, both of which have been huge publishing phenomena, the Amazon kindle digital edition is already considerably cheaper than its cheapest print edition. Our assessment of the situation is that there is no guarantee the tax reduction will be passed onto consumers which makes us question who the real beneficiary of the policy will be. In a Budget that failed to introduce any real measures to encourage large online retailers to pay their fair share of tax, we worry that this represents yet another tax break for Amazon.”
The Booksellers Association has also long called for an overhaul of business rates, which has outgrown inflation and become a huge financial burden for small shops. McCormack has demanded immediate action, saying the current system is no longer fit for purpose and BA m.d. Meryl Halls urged the Treasury Select Committee’s 2019 inquiry to “level the playing field” and reform business rates.
Halls told The Bookseller: “We are pleased the government has announced short-term measures to help booksellers who will be impacted by coronavirus. The increase of the retail discount on business rates to 100% for 12 months will welcomed by many of our smaller members. We were also happy to learn that businesses not currently eligible for rates relief will get a £3,000 one off grant.
“It’s unfortunate that the full review of business rates isn’t happening until the autumn, but we’re reassured that the government remains committed to the review and we look forward in participating in dialogue with the Treasury when the time comes.
“We are disappointed however that corporation tax is remaining at 19%, whilst there have been no announcements made to ensure the playing field has been levelled between high street businesses and online retailers.”