From Publishing Perspectives:
In the kind of major turnabout that publishing professionals normally can only dream about, Her Majesty’s Treasury in the United Kingdom has issued a statement today (April 30), announcing that as of tomorrow—May 1—the UK’s long-derided value added tax (VAT) on digital publications will be gone.
. . . .
Understandably upbeat, the Publishers Association’s CEO Stephen Lotinga says, “We’re delighted that the government has taken this step to significantly fast-track the plans to scrap VAT on ebooks and journals.
“This is a boost to readers, authors and publishers, especially important at this difficult time,” he says. “We hope that it will enable many more people to easily access and benefit from the comfort, entertainment and knowledge that books provide.”
Until now, the UK’s publishing industry has labored under a 20-percent tax on digital publications, while the print rate had been zeroed.
. . . .
Logic seems to have fallen on the chancellor of the exchequer, Rishi Sunak, who “said the zero rate of VAT will now apply to all e-publications from tomorrow (May 1)—seven months ahead of schedule—potentially slashing the cost of a £12 ebook by £2 and e-newspapers subscriptions by up to £25 a year.” That’s a saving of US$2.52 on a $15 book, and as much as $31 coming off the price of a digital newspaper subscription, by the government’s calculations.
. . . .
“We want to make it as easy as possible for people across the UK to get hold of the books they want whilst they’re staying at home and saving lives. That is why we have fast tracked plans to scrap VAT on all e-publications, which will make it cheaper for publishers to sell their books, magazines and newspapers.”
. . . .
- The Financial Times has reported that nearly 40 percent of adults surveyed in the UK have said that reading was helping them cope while they stay at home.
- The Reading Agency released a survey—here written up by our colleague Alison Flood at The Guardian–showing that one in three adults is reading more since the lockdown was announced on March 23.
Link to the rest at Publishing Perspectives
Any Vatters here?
VAT is a tax on value added. So the tax is applied to the value when sold minus the value when acquired.
.2(V2 – V1)
How do they get V1 for an eBook?
I’m not a “Vatter” but this is how it seems to work in general:
The VAT a business charges is applied as an addition to the whole retail price (if the business is registered for VAT, which it has to be in the UK if its turnover is above the VAT threshold (~£85,000) – special rules apply if you want to make digital sales to any UE country).
The “value added” is worked by claiming back the VAT on the cost of the business’s inputs: hence the need for a business to always get VATable invoices on anything it buys. If the supplier is small enough not to be registered for VAT it does not charge VAT and your business – if registered – has to pay VAT on the whole sale price and cannot claim anything back, but the price charged by your supplier should have been lower in this case.
Turning to your specific question, the general rule is that “You can usually reclaim the VAT paid on goods and services purchased for use in your business”. This generally works at an overall level so there is no need to identify a V1 specific to a particular product. For a traditional publisher the company will obviously be VAT registered – even though its paper books have always been subject to the super reduced VAT rate of 0% – and would presumably have been charging Amazon 20% VAT on the wholesale price of each eBook (but maybe not after agency pricing came in?).
I have to confess ignorance of how this works for indie authors as they seem to be licensing Amazon to sell their eBooks in return for a cut on the sale price and so not actually selling any goods or services to Amazon: my assumption is that their cut is simply taxable income and that VAT does not come into play (save that it used to cut the price on which their cut was calculated).
About time too, they could have done it as soon as the EU agreed in October 2018 to the super reduced rate (0%) being used for electronic publications. Still, better late than never.
What happens to Amazon pricing? Are indie authors setting a gross price – of which they will now get a 25% bigger share – or a net one, in which case all the published prices will drop tomorrow? For that matter should I have delayed purchasing the bunch of books for which I’ve just pressed to buy button??
Sorry, I meant to write “a 20% bigger share”
There’s a long debate over at Mobilereads over what “price set by publisher” means in VAT territories.
The bottom line is that with ebook VAT dropped to zero the price to consumers will stay the same unless the publisher chooses to change it. Amazon just won’t deduct the government vig before taking its fee and sending the rest to the publisher account.
How much that adds up to depends on the fee bucket the price puts the book in, 30% or more.