Tax Change to Affect Music Downloads

The price hikes early next year could affect digital downloads, as they become subject to UK tax rates.

Download prices currently include a levy, based on taxes in the country where a business is located. Big web firms have located offices in Luxembourg, so they can charge at tax rates lower than the UK's 20% VAT.

According to government estimates, closing the loophole could bring in revenues of about £300m in its first year.

The tax change will apply to film, music, e-book and smartphone downloads. The Office for Budget Responsibility estimates about 34,000 firms will be affected by the change.

The plan to change rates was mentioned in the Chancellor George Osborne's Budget speech last week. The plan was first set out in the government's Finance Bill and will come into force in January 2015.

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