HMRC climbs down on retrospective colouring book VAT charge

HMRC climbs down on retrospective colouring book VAT charge

Booksellers and publishers can breathe a sigh of relief with news that HM Revenue and Customs has decided not to recover any tax owed on colouring or dot-to-dot books sold before April 2017.

Publishers large and small had received letters from HMRC earlier in the year after filing their tax returns, asking for VAT payment for adult colouring books and dot-to-dot titles following the success of the mindfulness craze which dominated charts in 2015.

The adult colouring books had been sold at a zero rate of VAT, like other printed titles such as fiction and non-fiction, but HMRC had questioned whether adult colouring books and dot-to-dot titles - where pages could be removed - should be classed as a book. If left unchallenged, the move could have collectively cost the industry millions of pounds.

But yesterday (13th December) the government department issued a brief on the issue, saying that it does not intend to seek recovery of any tax on colouring or dot-to-dot books sold prior to 1st April 2017 where the content is suitable for children (people under 18 years of age). This is irrespective of how the book was marketed or held out for sale at the time, it said.

However, HMRC also warned that most of the content of the books currently marketed or held out for sale as "adult colouring books" or as books "suitable for grown ups" prevents them from being eligible for the zero-rate, meaning that they will incur the standard VAT rate if marketed in that way in future.

“Colouring books that are suitable and held out for sale to children under the age of 18 years are zero-rated,” the policy document said. “Most of the content of the books currently sold as ‘adult colouring books’ or as books ‘suitable for grown ups’ is also suitable for children under the age of 18 years. However, the way they are marketed and held out for sale, in HMRC’s view, prevents them from being eligible for the zero-rate.”

HMRC said colouring books or dot-to-dots marked as suitable for adults or grown-ups, held out for sale in retail shops together with other adult books that are unsuitable for children, or when for sale on a website and contain images reflecting profanity, pornography, violence and illegal acts, are not eligible for a zero rate of VAT.

"The implementation date of 1st April 2017 for the new policy to apply is designed to give publishers, wholesalers and retailers an opportunity to use up existing stocks as well as to review how they are to be marketed and held out for sale in the future," the government said. 

The brief also said it would consider claims for overpayment of VAT from publishers and retailers if the business has declared VAT on colouring books suitable for children and where HMRC has raised an assessment of tax for colouring books suitable for children. It will also consider claims for repayment of penalties and interest charged as a result of such assessments within a four-year time period.

Commenting on the new HMRC guidance, the Publishers Association (PA) chief executive Stephen Lotinga said: “We have been discussing the issue of VAT on colouring books with HMRC for some time and welcome the constructive manner in which that consultation was undertaken which led to the guidance published today.  The solution proposed is a very positive outcome for publishers, booksellers and consumers, and will ensure that the vast majority of colouring books remain free from VAT."

The Bookseller understands that W H Smith has been heavily involved liaising with HMRC to reverse its decision to tax adult colouring books. After the brief was published, a spokesperson for the retailer said: "We are extremely pleased with the outcome of HMRC’s review, which recognises the book industry’s arguments to maintain the zero rating for children’s books.”

Publisher Pavilion’s c.e.o. Polly Powell said: “We are delighted to hear that HMRC have come to this sensible decision.”

Meanwhile Tim Godfray, c.e.o of the Booksellers Association, added that the result was "really great" for booksellers "considering what could have been the outcome".

"We had a fantastic team acting on behalf of the industry, including VAT experts from bookselling, publishing and accountancy backgrounds, and Stephen Lotinga of the PA did a great job in his discussions with HM Treasury.”

In the breakout year for adult colouring books of 2015, Nielsen BookScan's Handicrafts, Arts & Crafts—the category in which the vast majority of the titles are coded—had a record year of £35.5m, up 160% on the previous 12 months. Colouring book stars Johanna Basford (£5.2m), Millie Marotta (£3.6m) and Emma Farrarons (£1.2m) all had seven-figure returns through the Total Consumer Market while publishers Laurence King (173% to £7.5m), Michael O'Mara (148% to £8.2m) and Pavilion (100% to £6.9m) earned triple-digit TCM value percentage rises on the back of the phenomenon.