Partner Article

Downloads just got dearer

As a result of EU VAT changes, the Government will legislate to change the rules for the taxation of supplies to consumer 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 and consequently, UK consumers will pay the UK VAT rate on all downloads, including e-books, music and film.

To avoid businesses having to register for VAT in every member state, businesses will have the option of registering in the UK and accounting for VAT due in other member states using a single UK return.

The measures are expected to impact up to 34,000 businesses, around 5,000 of which are not currently registered for VAT in the UK. Surprisingly, HMRC estimate ongoing compliance costs to be as little as £40 per business, per year. That is, £10 per quarterly filing return.

Given that the online reporting form proposed by the European Commission will require up to 20 boxes of ‘administrative’ details, plus up to an additional 19 boxes identifying the value of supplies, (and applicable VAT rates) per country where the services are received, HMRC would appear to have underestimated compliance costs, and don’t appear to have consider ‘start-up’ costs at all.

By being required to charge VAT at the rate applicable in the customer’s country of residence, UK suppliers will have to understand the VAT rates and compliance rules in each country where customers are located, and consider the most efficient method of collecting and recording data concerning their customers’ location.

This will therefore require businesses to ensure their IT systems and business infrastructure can adequately capture, record and declare that information. Implementing adequate data capture resources are therefore likely to prove expensive.

According to the Office of Budget Responsibility, the UK will however benefit from an additional £300 million in additional VAT revenue in the first full year of implementation. This however assumes that current spend by UK consumers will continue.

Earlier this year, Ofcom indicated that the more e-books increase in price, the less likely customers are to buy. A 20% rise in the average £3.74 cost of e-books (i.e. the equivalent of a 20% VAT hike) results in 25% less people buying the product. Indeed, if the costs of e-books rose to £10, Ofcom indicates that only 9% of consumers would continue to buy. Extrapolated, a £10 price tag on e-books alone would reduce OBR forecasted VAT revenues by some £50 million.

This was posted in Bdaily's Members' News section by Baker Tilly .