To help us provide you with free impartial advice, we may earn a commission if you buy through links on our site. Learn more

Tax change could make music and e-book downloads more expensive

eBook reader

New budget measures will mean VAT is levied in the country where item is consumed, not where company is based

Proposed changes to UK tax rates mentioned in this year’s budget could mean that digital downloads will become more expensive next year. The changes will apply to film and music downloads, e-books and smartphone games, and will come into effect on 1st January 2015.

At the moment, download prices are currently determined by tax rates in the country where the business is based. Amazon’s head office, for instance, is in Luxembourg, where the VAT rate for games, music and film downloads is 15 per cent, while VAT on e-books is just 3 per cent. Under the current rules, this means prices do not have to include the full UK VAT rate of 20 per cent.

New measures introduced in this year’s budget, however, aim to close this loophole by ensuring taxes are levied in the country where the goods are purchased or consumed, not where the head office is located.

“As announced at budget 2013,” the budget document said, “the government will legislate to change the rules for the taxation of intra-EU business to consumer supplies of telecommunications, broadcasting and e-services. From 1 January 2015 these services will be taxed in the member state in which the consumer is located, ensuring these are taxed fairly and helping to protect revenue.”

Around 34,000 firms will be affected by this change according to the Office for Budget Responsibility.

Apple downloads, on the other hand, could see a price decrease, as the company currently charges Irish VAT rates, which are at 23 per cent. This is highlighted on Apple’s own VAT Help pages, where it states:

“The VAT rate for Apple customers who purchase Electronic Software Downloads or other Apple products which are classified as services under EU VAT law will be 23% Irish VAT. This is because the place of supply of these products under EU VAT law is Ireland as the country from where Apple Distribution International makes these supplies.”

It’s not yet clear whether the new tax rules will mean price changes on digital downloads across the board. Any potential price hike will be very much dependent on each company, but official estimates suggest that the move could recoup an extra £300m for the Treasury.

Read more