App download tax

Five days after the 2014 Budget, tweaks and changes buried deep within the full Budget document are being unearthed and analysed. The latest discovery, hidden away on page 78, looks set to change the way UK consumers pay for music, TV shows, movies and apps bought from the likes of Apple, Google and Amazon.

Currently these digital purchases are sold from tax havens such as Luxembourg, meaning taxes on purchases can be as little as 3%. The new measures, set to be introduced in January 2015, will ensure that purchases of “e-services” are taxed in the country where the purchase is made. The full text sets out the new rules:

“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.”

The move would mean all downloads from Apple’s iTunes Store, Google Play and similar outlets would incur the full UK VAT rate of 20%. The Treasury estimates the move will generate around £300 million in extra tax revenue. The increased costs will most likely be passed on to consumers.

These new rules are being brought into force as part of an increasingly aggressive anti-avoidance stance from the Chancellor and HMRC. The measures include “pay first, trial later” rules that will see accused tax avoiders pay all potentially owed tax up front and reclaim it at Tribunal, and highly controversial new rules that allow HMRC to drain the bank accounts of tax avoiders to reclaim owed taxes.

Photo by NASA