HMRC plans VAT raid on colouring books

Publishers and retailers could owe HMRC millions of pounds of uncollected VAT following the adult colouring book craze of last year.

The Bookseller understands several publishers – from large conglomerates to independents – have received letters from the government’s tax department requesting money owed for VAT on adult colouring book titles after filing their end-of-year returns.

Print books and children’s colouring books are currently exempt from VAT, but it is understood that HMRC is challenging the idea that adult colouring books and dot-to-dot titles, where some pages can be pulled out, can be classed as a book. The HMRC also believes adult colouring books could be classed as 'uncompleted' books, which currently attract the full rate of VAT. It is understood that children's colouring books are not being targeted by the HMRC, but the department is demanding the standard VAT rate of 20% be paid on every unit title in the adult colouring category.

Lawyers have been engaged by some publishers to fight the issue, while the Publishers Association (PA) has been working with HMRC to get clarity on the situation, although none has yet been given.

If HMRC does ultimately decide VAT is owed on the titles in question, it could cost the industry millions of pounds collectively - adult colouring books sold 3,283,635 copies in 2015 alone worth £20.3m. However, some publishers may argue that all of their colouring titles are primarily aimed at children - and thus remain exempt whatever HMRC's views on the adult range.

Michael O’Mara, chairman of Michael O’Mara Books, told The Bookseller: "Early this year, Michael O’Mara Books, along with several other publishers, were told by HMRC that it had ‘recently decided’ to standard-rate for VAT so-called adult colouring books. It is our view that this decision flies in the face of the relevant legislation. We and other publishers, following the lead of the Publishers Association, are fighting this decision and we hope that HMRC, on reflection, recognise that they have got this wrong."

Another publisher, who did not want to be named, said: "Publishers are deeply concerned about the lack of clarity coming from HMRC on this. This feels like a grab for cash after that sector of the book market has done so well recently and at the very least, its thinking is based on an ambiguous law."

James Daunt, m.d. of Waterstones, said the issue affected retailers too and echoed calls for clarity. "There needs to be clarity from HMRC around the issue on the definition of books which are VAT-exempt because there is lot of confusion at the moment," he said. "Retailers will be affected and will owe VAT on their margin of the sale, along with publishers, and if it is confirmed we owe HMRC that it will certainly be a sizeable chunk of money." However, Daunt added that the company was "provisioned" to pay for it.

David Scott, tax partner at the law firm Harbottle & Lewis, confirmed that HMRC had told some publishers that some adult colouring books, and others such as dot-to-dots and books where pages can be pulled out, do not "constitute a book for VAT purposes and should not have a zero VAT rating".

He added: "Among those they are querying are about 10 different types of books, I believe. Publishers are keen for HMRC to clarify the issue and define the nature of a book."

Stephen Lotinga, c.e.o. of the PA, said the trade body was helping those affected to communicate their "significant concerns" over the potential impact such a policy could have on their businesses to government and HMRC.

Meanwhile, a W H Smith spokesperson said: "We are in discussions with HMRC and will not comment while those discussions are ongoing."

A HMRC spokesperson confirmed the department was meeting with publishers soon to discuss VAT on adult colouring books. 

"There's been no change to the rules. Children's colouring books are entirely free of VAT and there are no plans to change that. We are meeting with publishing representatives shortly to discuss the VAT treatment of adult colouring books," the spokesperson said. 

The adult colouring book craze began taking off in early 2015 helping the trade to its first rise in print sales in eight years, up 6.6%, with titles such as Johanna Basford’s Enchanted Forest (Laurence King), and the Harry Potter Colouring Book (Studio Press) selling in high volumes.

Publishers and booksellers have long been skittish about the prospect of VAT being levied on printed books as the sector has fought numerous battles over the years to retain the VAT exemption on books.