Digital downloads could jump significantly in UK as government seeks to close tax loophole

iPhone 5S hands on home angle

The UK government’s upcoming spending plans outlined last week included a plan for new tax laws that could see a significant jump in the cost of downloaded content, at the same time bringing to an end the 99p song download.

Up to now the likes of Apple and Amazon have been able to exploit a loophole where sales of digital content – including apps, music and books – are subject to low rates of tax by pushing the purchase through other countries with rates far below those of the UK.

The proposed law will mean digital content bought within the UK will be subject to the country’s 20 percent Value Added Tax (sales tax) instead of, for example, the rate currently imposed by the likes of Luxembourg (as low as 3 percent), through which many download purchases are made.

Spotted by the Guardian among the finance minister’s lengthy budget speech last Wednesday detailing the Conservative government’s forthcoming spending plans, the announcement could affect millions of people in the UK who regularly download content to a mobile device or computer.

The tax change regarding digital downloads was explained in the government’s document as follows: “As announced at budget 2013, 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.”

According to the Guardian, the changes couldn’t come soon enough for brick-and-mortar retailers in the UK, may of which have been complaining of an unfair system, with the equivalent physical goods subject to 20 percent sales tax.

While it could mean an extra £300 million a year for the government’s coffers – with much of it expected to come from Apple’s iTunes store – it remains to be seen whether those selling content online will absorb the costs or simply pass them on to the consumer.