Ann L Humphrey

A small commercial law firm referred one of their clients for help in establishing the VAT liability of their product.. E-Books produce ‘photobooks’ and became concerned when they discovered that one of their competitors had been assessed by HMRC on the basis that their product was subject to VAT at the standard rate. E-Books have always treated their product as VAT-free.

A customer who wants to purchase a photobook downloads free software from the E-Books webpage and adds his own content to a chosen template. The content is normally digital pictures and some text (for example, personal messages, or poetry). Most of the photobooks contain text although the amount varies. Examples of recently produced photobooks are an autobiography (text only), a cookery book, a baby word and picture book, and a story book. Having uploaded the content, the customer chooses the paper quality and format (hardback or paperback). A proof is provided electronically and the customer is then supplied with a physical copy of his book. 

E-Books do not offer a design service – they print and bind to produce the finished product which is what they sell. The quality of a photobook is equivalent to that of a book sold in a bookshop. 

Q: Is a photobook a zero-rated book and therefore free of VAT?

The supply of ‘books, booklets, brochures, pamphlets and leaflets’ and ‘children’s picture books and painting books’ is zero-rated for VAT purposes in the UK and has been since VAT was introduced in 1973. The UK VAT legislation does not define any of the terms leaving the words to be interpreted in their ordinary, everyday sense. 

Customs and Excise Commissioners v Colour Offset Ltd [1995] concerned the VAT liability of (empty) diaries and address books (a published completed diary would be a book). In Colour Offset, the Court held that the ordinary meaning of the word ‘book’ for the purposes of the VAT legislation was ‘an object having the minimum characteristics of a book which was to be read or looked at’.

The minimum characteristics of a book are:

• it is produced on paper or similar materials such as card

• it consists of a number of leaves containing text and/or illustrations

• it is bound in a cover stiffer than its pages

HMRC are of the view that, in addition, the product must fulfil a functional test of conveying information by means of text. This appears to be based on the fact that as children’s picture books are specifically mentioned in the legislation as benefiting from zero-rating, adults’ picture books would have been similarly mentioned if the intention had been to zero-rate them also. HMRC’s view is not supported by the wording of the legislation. Construction of a statute is a question of law. 

There are many examples of items which are generally accepted as zero-rated books which have little or no text, such as, the aerial photographer Robert Cameron’s ‘Above Washington’ and books of photographic work by Helmut Newton. However a distinction does have to be drawn between a book of photographs (zero-rated)and a completed photo album (standard rated).

When approached to confirm that zero-rating would apply to the photobooks, HMRC‘s initial ruling was that the product was a modern version of a photo album and therefore taxable at the standard rate. We are seeking to change HMRC’s opinion (with some success) but we have warned E-Books that they may have to appeal to the First-tier Tribunal to get the correct result in every case.

Update December 2011

In November 2011 the First-tier Tribunal gave its decision in the lead case of Harrier LLC.  One of the questions for the Tribunal was whether certain photobooks were zero-rated.  In the main, the Tribunal found that they were and the case makes interesting reading.  HMRC may well appeal as there will be a lot riding on this decision.  Alternatively they may change the law.  Or both, let's wait and see!

January 2012

I have been told that HMRC have not appealed the decision in Harrier.