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20 March 2014
...as The O Jays sang.   Money money money money......money.

So I've been looking at the upcoming VAT changes that have been pushed through by the EU.

Now I'm not an account so I did ask an account, my best friend coincidentally, what his thoughts on the subject are.  His name, for the record, is Andy.

Basically at the moment VAT is changed in the country in which the company making the sale is domiciled.

As of the 1st January 2015 it will be charged at the rate in which the purchase is made.

"What has this to do with the sale of books?"  I hear you ask.  Well you may not pay VAT on books but you do pay VAT on eBooks.  This isn't the post for that discussion but I do think it's really stupid.

Back to my point:

Amazon is domiciled in Luxembourg and charges 3% VAT on eBooks.

As of January Amazon will be charging 20% VAT on eBooks.

So lets look at a simple example.

If I sell my Kindle eBook at £2.99 via Amazon currently it breaks down as:

So that's £2.49 net 50p VAT.

I get to keep £2.09.

Amazon pay over 7.5p VAT.

So Amazon get their 40p + 42.5p retained VAT.

In total their revenue on my eBook sale is 82.5p.

After the 1st January all they get is their 40p .

So that's a 50%+ drop in revenue on eBook sales.

Discussing this further with Andy he thinks that Amazon will take the hit.  I think that's absurd.

What company would willingly or unwillingly take a 50% on part of their revenue stream?

We struggled to get figures by which to make valid calculations which makes this hard to quantify.

However, as far as I see Amazon have three or four options:

1.  Take the hit.

2.  Lower my % take to 65% or even 60%

3.  Raise the 70% stake threshold so I have to charge £3.99 or £4.99 to qualify for that figure.

4.  Do a combination of 2 and 3 so effectively introduce a 3 tier structure of steadily increasing returns for self pubbed authors.

I have no idea what they are going to do but it'll be interesting to see what effect it has on the market.

As always I would be interested to hear your thoughts on the matter.

Phil

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