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Downloads face price hike in UK tax shake-up

Music, films and apps from iTunes, Amazon and other digital download shops could see a price hike in the UK as the government closes a costly tax loophole.

The Beatles song Taxman may cost more than 99p under new UK tax laws. Screenshot by Rich Trenholm / Apple

British music fans could be slapped with price rises on downloaded tunes as the taxman targets digital downloads. Closing a tax loophole could see the price of songs, films and other digital downloads go up if iTunes, Amazon and other online shops are forced to pay full UK VAT.

Chancellor George Osborne intends to bring in laws that ensure digital items will be taxed at the rates of the country where the consumer is located -- so films, music, apps and games downloaded by people here in Britain will be taxed at the British rate.

Currently, online retailers like Apple and Amazon claim their digital downloads come from other countries -- funnily enough, the ones with lower tax rates, like Luxembourg. Basically, it's the same tax avoidance wheeze that allows global corporations to nominally base themselves in countries where the taxman is a lax man, and so dodge taxes in countries where rates are higher. Update: Apple actually bases its online downloads in Ireland, which has a VAT rate of 23 per cent.

'Cause I'm the Taxman

Under Osborne's plan, digital downloads will be subject to British tax rates from 1 January 2015. Value Added Tax, the UK's sales tax, is applied to most purchases at a flat rate of 20 per cent, potentially raising prices and breaking the magic £1 barrier. That could push movie and music fans towards subscription services like Netflix and Spotify -- or worse, piracy.

"Music downloads are already too expensive for most music fans -- that's why we are starting to see declines in their sales in many markets. Any further increase in the price is likely to accelerate this trend," says Oleg Fomenko, CEO of, which offers subscriptions from £1. "Music needs to be priced fairly and affordably if we're to encourage young people to pay for music again and not resort to free or illegal services which don't reward the artists."

On the plus side for Britons, the move could level the playing field for British companies, and could generate an estimated £300m for the Treasury's coffers to spend on schools, hospitals, and MPs' holiday homes.

Some items pay no VAT, such as childrens' clothing, safety equipment and staple foods. Other items are exempt, including gambling, financial and medical services, and antiques.

The 2014 budget, announced last week, also includes funding for research into 'wonder material' graphene research, and an institute studying big data named for mathematician, cryptographer and war hero Alan Turing.