Why digital downloads might cost more in 2015

We recently commented on the changes coming in January 2015 to VAT on digital downloads.  Here we consider further what will these changes mean for the consumer.

At the moment, the rate of VAT charged on digital downloads depends upon the country within which the supplier is based.  Large web based companies have located their offices in countries with low VAT rates such as Luxembourg to take advantage of being able to charge VAT lower than the UK’s 20%.  Under new rules, the VAT rate will be determined by the location of the consumer.  For the UK consumer, this will mean a significant increase on the amount paid.  It is estimated that increased VAT revenue could be in the region of £300 million as a result, and in the region of 34,000 companies will be affected.

The changes will affect downloads of films, music, e-books and smartphone games which will all become subject to UK 20% VAT rate.  Luxembourg currently charge 15% for music, films and game downloads and only 3% for e-books.

It is likely that purchases from iTunes or Amazon will have the greatest impact on consumers, though it is not certain at this stage whether these companies will chose to pass on the increased costs to their customers.  In reality however, it is likely that the days of the 69p app or the 99p download may soon be coming to an end.

From the viewpoint of businesses however, UK trade may benefit from the changes as our suppliers will be competing on an even playing field as other countries within the sector, though this will be of little consolation to the UK consumer.