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Now here's a nice wrinkle of the laws governing this place that Tony Blair wanted to be "the best place for ecommerce anywhere in the world". If you send commercial data by email or over the Web, it's liable for VAT (17.5 per cent value-added tax, imposed in the UK on services) on the value of the data. Which of course with commercial data can be quite high.

But if you print that same data out and send it on paper, by post or fax, it is not liable for VAT.

That's right. By stepping back to a Victorian (or just earlier in the Elizabethan) age, you can get that vital price edge over rivals.

This peculiar aspect of the UK's arcane tax laws was pointed out to us by Paul Redfern, who has a business offering data analysis services, crunching numbers for social survey data.

Most of his clients are VAT-exempt. Yet they still have to pay VAT because Dr Redfern still has to charge it if he emails the data.

And of course there's no choice about doing that. Emailing the data keeps it in a form where it's useful - spreadsheets, databases, and so on - and means Britain can be a Great Place for a bit of ecommerce, because it speeds up communication. Putting it on paper is slower, costlier (all those dead trees) and destroys the useful formatting work done in collecting it.

"When I first was told that I had to charge VAT on emailed data, I emailed my local MP, Michael Portillo, who at the time was shadow Chancellor, about this issue, hoping that he'd think it worth campaigning about (joined-up government, e-economy, blah blah). However his office not only confirmed that commercially valuable e-data were liable for VAT, if transferred electronically, but that there's nothing to be done about it," said Dr Redfern.

The reason? Apparently it's down to an EEC Directive of 1977, subsequently amended (many times), which aims to harmonise VAT on communications, including electronic communications. What the VAT is actually levied on depends on the means of communication, Dr Redfern was told. "If I post or fax data to you, the VAT is either included in the price of the postage stamp or the cost of the phone call. If I email the data, however, the VAT is levied on the value of the data I send you, not on the cost of communicating it."

This seemed rather backwards to us, so we called Customs & Excise (which handles VAT) to ask whether this was correct, or whether Dr Redfern's accountants were having a laugh.

"The problem is that there are different exemptions from VAT," explained a spokesman. "Printed publications like books are zero-rated [exempt from VAT]. But if something is sent digitally then VAT is normally due. But," he added, "that's not cut and dried."

He pointed us to C&E's jolly document on "Electronically supplied services and broadcasting services: New EU rules" (at this page) which should also be read together with this page. Though only if you're feeling strong, or accountant-like.

Dr Redfern's annoyance was further piqued when he was told that although the EU can't tell member states what specific products ought to be liable for VAT (hence the exemption from VAT in the UK of books and children's clothing), once a government declares a particular good or service to be liable for VAT, it cannot ever remove its liability thereafter. "So even though the drafters of the 1977 directive would never had email in mind when they were drawing up their directive, the legislation can't be changed," he says.

We have dived in on your behalf to the European Commission website, which is as clear as mud, in the hope of finding the particular part of the particular directive which says that VAT is chargeable on email. You could try this page which leads to this Council Directive of June 1999 (PDF) "amending Directive 77/388/EEC as regards the value added tax arrangements applicable to telecommunications services". Or you may just decide that God created accountants for a good reason - which is to understand this stuff. It's not like they write code, after all. ®

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