Martin Paul Eve bio photo

Martin Paul Eve

Professor of Literature, Technology and Publishing at Birkbeck, University of London

Email Books Twitter Google+ Github Stackoverflow MLA CORE Institutional Repo Hypothes.is ORCID ID   ORCID iD

Email Updates

That's a pretty specific title, I suspect, but as I am learning with the Open Library of Humanities, we're in uncharted territory, a place where the specifics matter. This post should not be considered legal or accounting advice. I'm not qualified to give it. I post this as a series of matters that we are working through, with advice from our accountants, in case anyone else is trying a similar enterprise and wants to know what the landscape looks like.

As a brief background: The Open Library of Humanities (OLH) is a gold open access, peer-reviewed, internationally-supported, academic-led, not-for-profit, mega-journal, multi-journal and books platform for the humanities. It is funded by an international library consortium and so has no author-facing charges.

Open access refers to peer-reviewed academic research that is available freely to read and re-use online. Gold open access means that this service is provided by publishers. This usually means that a new business model is needed as if the material is free to read, it cannot be sold as a subscription. Many publishers are implementing this through article and book processing charges (APCs and BPCs). These, though, are unaffordable in humanities disciplines.

The OLH works differently with a small contribution from a large number of libraries covering the costs of publication; a cost pool. The OLH thereby offers an extremely cost-effective solution for open access that means that no single institution bears a disproportionate cost. Participating libraries not only invest in a community shared service that would not otherwise be feasible but are also given a governance stake in the project.

All well and good. Now, here's where it gets complicated and we begin to delve into tax law. We are a not-for-profit entity: a UK company limited by guarantee. We work with a technological supplier who must charge us VAT on supplies. We have "agents" in countries abroad who act as billing intermediaries. In short: we want to take money from libraries worldwide and make the products of the labour for which they pay available to everyone.

Let's consider what this looks like in a couple of different scenarios. If we were a traditional publisher, where you, as a UK library, were paying us for the "direct and immediate" supply of a product to your collection, we would charge you VAT at a rate of 20%. We would, in addition, be able to claim back VAT on our expenditure to our supplier. The same applies to open-access publishing done through Article Processing Charges (APCs). If we were a for-profit academic publisher in this same environment, we would have to pay UK corporation tax.

But we are not like that. We are neither for-profit, nor, potentially, are we selling something back exclusively to participating libraries as a "direct and immediate" benefit. After all, everyone gets access. There is potential, therefore, for our activities to be classified as "non-business" activities. This means that we would not need to charge UK- and EU- based customers VAT. By contrast, though, it also means that we could not claim back VAT on our expenditure. If we didn't raise prices, therefore, this would entail a 20% hit to our revenue vs expenditure.

There is a further VAT complication, apparently. If, as an entity, we are contracting services from providers outside the UK (like a billing agent) that would be VATable in the UK, and this pushes us over the VAT threshold, then that expenditure may count as though it should be VATable. Yes, you read that right. We might have to pay VAT on something we were purchasing as though we'd received it as income. This is supposed to be in order to equalize competition between UK and external corporate entities. In reality, nobody in the UK can provide the specific services we need and it could prove to be a VAT headache.

Likewise, we are not registered as a charity in the UK at the moment. This is because the governance issues are more complex than for a company limited by guarantee, even though all of our activities clearly fall under the remit of educational charity. It will probably cost about £3,000 for us to get the legal advice needed to do this correctly. Without it, though, we are potentially liable for corporation tax, which would be another 20% hit to our revenue.

These can be resolved and our accountants are preparing a recommended course of action that ensures we pay the right and fair amount of UK tax while delivering our (not-for-profit or charitable) objectives. I will write more about this at that point. In some contexts, this is unproblematic: we don't charge VAT outside the EU anyway, so this is going ahead. It may cause a minor hold-up of a few weeks to taking UK payments, though, which is frustrating as Jisc were now just ready to press go and to launch today. The likely outcome is that we will file for full charitable status (and take the initial legal bill hit or try to get some pro bono/through-the-university type help) but also that we may end up with a non-VATable revenue stream while outgoings incur irreclaimable VAT. This is a pain and something that similar enterprises should be aware of. It's not the end of the world though. More as I get it.