The UK has finally moved to axe VAT on ebooks and digital newspapers and magazines but the 20% cut won’t happen until December 1, 2020.
Pressure for VAT to be removed from ebooks has been growing over the past few years as countries throughout Europe have reduced their rates of VAT (value-added tax) on ebooks but the UK has stuck to the rate of 20% despite print books benefiting from a zero tax rate.
The UK move on VAT was made in the Budget on Wednesday (March 11, 2020) and the government statement says, ‘The government expects the publishing industry, including e-booksellers, to pass on the benefit of this relief to consumers.’
That could turn out to be unlikely as many indie authors have already simply been absorbing the VAT by reducing their profit margin.
For example, if an ebook is priced on Amazon at the minimum price of £0.99 in the UK store it means that the book is about £0.82 without VAT and then Amazon adds on the tax.
The author only gets paid a royalty on the £0.82 price which means a grand total of £0.29 paid to the author per sale rather than the £0.34 which would be payable on the full £0.99 price.
Under the new 0% tax rate the ebook would still have to be priced at the minimum of £0.99 so it’s actually not even possible to pass on the tax saving.
Above the minimum of £0.99 it is possible to price ebooks at odd points but the whole business is geared towards having ebook prices ending in .99 so for indie authors at least (£2.99, £3.99, etc) that position is unlikely to change very much but the VAT move should provide a welcome income boost.
Perhaps the bigger publishers which charge high prices for ebooks such as £12.99 may want to reconsider their prices. The VAT portion of a £12.99 is around £2.17 so they could, for example, reduce their price to £10.99 and still be in profit from the change. There hasn’t, however, ever been a sign of publishers reducing their print book prices because they are zero-rated so it’s difficult to see that they’ll do so for ebooks.
In another tax move that wasn’t actually revealed in the Budget announcement, the UK government has announced it will introduce a 2% digital services tax on the turnover of digital companies such as Amazon, Facebook and Google. The tax will apply to firms with revenues of more than £500 million where at least £25 million comes from UK users.