I don’t know anyone in the book trade who doesn’t want to see Amazon pay a fair rate of tax. Gaming the existing system is one reason why they’ve been able to wreak havoc across the industry with predatory pricing and other tactics. Making them pay fair taxes would go some way to levelling the playing field. Unfortunately the way this is now being done will cause a lot of collateral damage. The further you go down the publishing scale, the worse the damage becomes.
This new system’s* been set up on the assumption that the majority of ebook sales are through third party vendors. That is perfectly true. Amazon in particular has a grip on that market which is now set to become a stranglehold. Because it’s nowhere near the whole story. It’s become very apparent that the authorities who set all this up have been missing a big piece of the picture. (Yes, I know I’m mixing metaphors.)
Firstly, yes, Amazon – and Google Play, and iBooks – all take a hefty cut of any revenue from the ebooks you sell through them, 30-70% depending on the deal you sign up for. Which is a non-negotiable deal, let’s not forget. You tick a box agreeing to Terms & Conditions which they can vary at any time, as they see fit. Unless you’re Behemoth Books, in which case you can negotiate your own terms, but no one without that kind of clout can hope for anything better.
Also, to use a couple of mythical examples, if you’re Behemoth Books, dealings through Amazon will be a big chunk of your business but you’ll have other revenue streams, notably but not limited to hard copy sales. But Back Bedroom Books of Chipping Norton, who’s an entirely digital publisher, maybe aspiring to offering print on demand editions one day in the future? Sales through these 3rd parties are a much bigger share of their total income, as the price for visibility and availability via Kindle or Nook or whatever.
At the moment at least, Back Bedroom Books can also offer .epub and .mobi files direct from their own website and keep all the revenue. They can do that for a short, exclusive period before the book goes to wider distribution, letting valued customers and a writer’s most loyal fans know where they can get the new book first, thus getting the maximum benefit from that first rush of sales. The customer pays the same price in the end after all, so readers don’t lose out. Those direct sales matter, and the smaller the operation, the more they matter.
But as of 1st Jan 2015, Back Bedroom Books and its equivalents will have to shut their online stores. For some operations, that’ll put enough of a dent in their revenues that they will no longer be viable businesses. So their anthologies showcasing and supporting new authors will be no more. The more established authors’ backlists which they might have published, and the quirky side projects, novelettes and novellas which the big publishers decline won’t be available. Which will be a blow to authors who are increasingly turning to such projects to bolster their dwindling income from advances and royalties.
Will that really matter to readers? Well, it will if your favourite writer can no longer afford to write. There are other issues as well. Amazon – and the others – aren’t necessarily always best placed to trade e-books across Europe. They have their own issues with territoriality and availability. Some stories I’ve heard about trying to buy UK published ebooks in Ireland are mind-boggling, if publishing and licensing contracts – and the DRM software that derives from them – consider Ireland to be part of Europe, which of course it is. Depending on which English language rights the publisher holds, it may simply not be available. Life can be particularly fun in Belfast, with a credit card from a UK bank that allows you to buy the book you want, if the inner workings of your e-reader have missed out on the last century of British Isles’ history and think that the entire island of Ireland is one country and so that counts as a cross-border sale into the EU where you’re not licensed to read it. So you can’t. Yes, I was astonished the first time I heard one of these tales of woe.
And let’s not forget that from time to time, whole swathes of ebook listings get deleted or delayed on Amazon – and the others – whether through accident, misunderstanding, over-reaction to some alleged moral panic, or when Amazon wants to force through some new terms and conditions. Behemoth Books has a whole range of other sales outlets, so that takes some of the sting out of the hit. They’re also big enough to generate sufficient bad publicity that whoever’s at fault gets the hint to sort things out pretty sharpish. Back Bedroom Books of Chipping Norton is in a world of trouble and the smaller the publishing operation, the less clout they have, however loudly they’re clamouring for action.
At the moment, if such an oddity crops up, that reader can head to the publisher’s own website and with any luck, they can get a DRM free edition that they can enjoy without these hassles.
Not after 31st December 2014, they won’t be able to.
*For those of you just joining this story – as of 1st January 2015, VAT (essentially a sales tax) on electronic products will be levied at the rate applicable at the customer’s location, rather than the suppliers’ base of operations. So Amazon will have to pay 20% for sales into the UK rather than Luxembourg’s 3%. You can find a whole lot more about this via previous posts and links on this blog. And let’s not forget it’s not just Amazon who’ve been taking (perfectly legal) advantage of the current loophole by funnelling all their business through Luxembourg.
So now calculating a price across EU borders means knowing the applicable rate of tax at the customer’s location. That’s 28 separate jurisdictions. Are you supposed to set a price that’s going to fluctuate at the check-out when someone tells you where they live? That’ll be so unpopular that people obviously won’t. So you have to pitch the price where you guess the plusses and minuses will even out and you won’t take too much of a hit. How are you supposed to know where people live? There’s a list of approved indicators, and you’re supposed to collect three pieces of data, of which two must match. Er, okay. Oh and you’ve got to store that highly sensitive personal data securely for ten years. Okay?
So this is a real headache, and the smaller the scale of your operations, the bigger headache it becomes because the turnover threshold for this is £0.00. Or €0.00. Or $0.00 in whatever sort of dollars you use.
Amazon – and Google Play, and iBooks – have known this is coming for several years now, and have their new systems in place, as anyone publishing via KDP now knows from this week’s email. Publishers who sell ebooks direct from their own websites – and who belong to the trade bodies which have been HMRC’s main route for spreading the word about this – have known it was coming and have paid their software developers to write them compliant new systems accordingly. Okay then, they’re covered.
For anyone else, there’s VATMOSS, the HMRC’s new VAT Mini One Stop Shop, which will do all the sums for you. That is fine if you’re already VAT registered, which means having a turnover of over £81,000 by the way. You’ll have an accountant who’s used to doing VAT returns and you can probably afford to pay him or her to do that bit of extra work.
But the smallest of small publishers? Who don’t dream of reaching VAT registration levels in their wildest imaginings? Who don’t belong to any trade body that could have warned them this horror was on its way? They’re in a world of trouble, because the free/cheap web payment mechanisms they rely on, like PayPal, simply don’t provide the location information they need. Even if they could get it, is anyone going to be happy with their highly sensitive personal data sitting on the hard drive of someone’s laptop on a kitchen table? They can’t opt out of EU sales either; plug-in web payment mechanisms don’t enable that and anyway that falls foul of discrimination legislation.
These small publishers are having to close their direct ebook webstores as of 31st December 2014. Unless they want to risk the chance of lose-your-house-money fines. Yes, really.