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Sky saved £40m a year on magazine tax dodge

November 20, 2012

A customer magazine published by BSkyB was used as a tax avoidance scheme that saved the company up to £40 million a year.

The satellite broadcaster had been saving millions in VAT by charging satellite customers a nominal £2.20 a month for the Sky magazine, using a tax loophole that has now been closed. Magazines, along with books and newspapers, are normally zero-rated for VAT, and this meant Sky could avoid VAT on a small but significant percentage of revenue. The saving, at about £3 to £4 per person, would have amounted across Sky’s 10 million subscribers to at least £30 million to £40 million per year.

In 2005 UK courts ruled that cable companies were allowed to deduct VAT on “cable guide” magazines and similar publications, if they structured them so that customers did receive a genuine product from a separate company, delivered at a fair price. Sky’s TV Guide listings magazine had been originally denied the VAT free status in the late 90s (having been using it for several years) leading eventually to the 2005 ruling.

In December 2010, the Treasury announced a variety of anti-tax avoidance measures, to be enacted in 2011. This included legislation against VAT “supply-splitting”.

In February 2011 Sky said it would end publication of Sky Movies magazine and Sky Sports magazine, and downsize Sky magazine, with a potential loss of 20 jobs. Coming in the middle of the financial crisis, it was widely perceived as a cash-saving exercise. By October all publications had been pulled, and BSkyB Publications was also being wound down. A footnote in Sky’s quarterly report for September 2011 noted that Sky had previously recognised benefit from the zero-rated VAT treatment at about £3 to £4 per head, but that this had now been “restated”.

HM Revenue and Customs told the Guardian it was not possible to comment on individual cases. “If there is some kind of contrived scheme or vehicle, ie it’s obvious that the purpose of the scheme is to avoid paying VAT and it’s taking advantage of a loophole and we consider that tax is actually owed on the scheme, rather than just being a case of sensible tax planning … we can make the judgment that this is not legitimate tax planning. And if we consider that somebody has not applied the rules we will then go back three to four years and if there is back tax owing we will ask them for it.”

Sky said in a statement: “The TV listing magazine that Sky used to publish was, in common with all newspapers and magazines, zero-rated for VAT. Sky directly contributes more than £1bn a year in tax – a total of 1.4 per cent of all taxes paid by the 100 largest FTSE companies. We’re proud of the significant – and growing – contribution we make to the British economy.”

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