VAT on UK e-books • 17 December 2011 • The SnowBlog
VAT on UK e-books
Bureaucracy is a funny old thing. Under UK law, e-books attract standard-rate VAT because they are text "supplied by electronic transmission" (source). And of course paper books are 'zero-rated' for VAT. What that means is that someone has to pay an extra 20% on top of the nominal price of an e-book but not a paper book. Either the retailer or publisher need to swallow that charge or, more likely, the customer does.
It's a peculiar setup because increasingly we use e-books and paper books interchangeably. In many (I would suggest most) publishing companies, the e-book is brought into being using the exact same files used to create the paper version, with a few extra tweaks and adjustments thrown in. So the chances are that the content, at least in novels and other all-text formats, is identical to the paper version right down to the last comma. And especially on e-ink screens, the reading experience can be very close to that of a paper book. I think in the reader's mind an e-book is a kind of book, whereas under tax regulations one is printed and bound material, the other is something quite different: text delivered electronically. In reality, the main differences are in the means of production and the method of delivery. Given that VAT is a consumer-oriented tax, it's strange that the nature of the product and the benefit to the consumer end up being more or less irrelevant compared with the supply chain details of how it arrived in the consumer's hands. It's also strange that many eco-friendly products attract the reduced VAT rate (=5%) e.g. items like solar panels and wind turbines. And yet when it comes to books, chopping down trees is zero-rated while the low-impact electronic version is taxed at the full rate.
A friend who deals with VAT law for a living tells me that this is not because of any careful thought; it is simply a consequence of old definitions which have unexpected modern consequences, but which no one wants to change because re-wording or re-drawing VAT regulations is a huge can of worms that no one wants to open.
Even so, the logical inconsistency of the current regime makes you start to wonder if there are ways for publishers themselves to redefine an e-book to bring it into line with its paper equivalent. What if e-books were supplied as printable files? If a reader paid to download a printable file and chose not to print it, but instead read it on-screen, could it be priced as printed material? No? What if you did choose to print it and attach a binding? Would it now be zero-rated? Or what about printing the cheapest, flimsiest paperbacks you ever saw and offering a free e-book to accompany each one sold. The paperback is made available for collection, should you wish to come and pick it up, but most would choose not to. (And if they were printed mainly P.O.D. most of the cost of the paper version could be avoided by the publisher.)
And of course if you have enough money, all you do is supply your e-books from some offshore VAT island like Jersey. Which means that VAT has the effect of penalising the environmentally-friendly e-books of small publishers as compared with higher-impact paper or the sales of larger organisations. That's surely not what any EU politician would have chosen. But that's the situation and those are the incentives until someone either redefines or successfully circumvents the current rules.
update: just noticed that James Bridle (who seems to pop up wherever I look these days) has a better-researched post on this subject from the beginning of the year (here)
Rob
Bureaucracy is a funny old thing. Under UK law, e-books attract standard-rate VAT because they are text "supplied by electronic transmission" (source). And of course paper books are 'zero-rated' for VAT. What that means is that someone has to pay an extra 20% on top of the nominal price of an e-book but not a paper book. Either the retailer or publisher need to swallow that charge or, more likely, the customer does.
It's a peculiar setup because increasingly we use e-books and paper books interchangeably. In many (I would suggest most) publishing companies, the e-book is brought into being using the exact same files used to create the paper version, with a few extra tweaks and adjustments thrown in. So the chances are that the content, at least in novels and other all-text formats, is identical to the paper version right down to the last comma. And especially on e-ink screens, the reading experience can be very close to that of a paper book. I think in the reader's mind an e-book is a kind of book, whereas under tax regulations one is printed and bound material, the other is something quite different: text delivered electronically. In reality, the main differences are in the means of production and the method of delivery. Given that VAT is a consumer-oriented tax, it's strange that the nature of the product and the benefit to the consumer end up being more or less irrelevant compared with the supply chain details of how it arrived in the consumer's hands. It's also strange that many eco-friendly products attract the reduced VAT rate (=5%) e.g. items like solar panels and wind turbines. And yet when it comes to books, chopping down trees is zero-rated while the low-impact electronic version is taxed at the full rate.
A friend who deals with VAT law for a living tells me that this is not because of any careful thought; it is simply a consequence of old definitions which have unexpected modern consequences, but which no one wants to change because re-wording or re-drawing VAT regulations is a huge can of worms that no one wants to open.
Even so, the logical inconsistency of the current regime makes you start to wonder if there are ways for publishers themselves to redefine an e-book to bring it into line with its paper equivalent. What if e-books were supplied as printable files? If a reader paid to download a printable file and chose not to print it, but instead read it on-screen, could it be priced as printed material? No? What if you did choose to print it and attach a binding? Would it now be zero-rated? Or what about printing the cheapest, flimsiest paperbacks you ever saw and offering a free e-book to accompany each one sold. The paperback is made available for collection, should you wish to come and pick it up, but most would choose not to. (And if they were printed mainly P.O.D. most of the cost of the paper version could be avoided by the publisher.)
And of course if you have enough money, all you do is supply your e-books from some offshore VAT island like Jersey. Which means that VAT has the effect of penalising the environmentally-friendly e-books of small publishers as compared with higher-impact paper or the sales of larger organisations. That's surely not what any EU politician would have chosen. But that's the situation and those are the incentives until someone either redefines or successfully circumvents the current rules.