20% VAT for ebooks arrives today — what’s your strategy?

If you publish ebooks on any digital platform, you should be aware that an increase in VAT has been in the pipeline for some time. It came into effect this morning and applies to all digital downloads. For the purposes of this brief article I’m going to be talking about how it affects UK-based users of the Kindle Direct Publishing (KDP) platform.

How it used to work

Calculating VAT was always a little arcane in the old version of KDP. VAT was fixed at 3%, but it wasn’t included in the price you set on the book’s dashboard. For example, if you wanted your book to cost £1.99 to the customer you had to set a price of £1.93.

For the kind of prices we’re talking about, 3% VAT was negligible and made very little difference to an author’s bottom line.

How it works now

I woke up to find that one of my titles had been automatically hiked in price from £1.99 to £2.32 (curiously, my other titles remained at their original prices). When I delved into the KDP bookshelf I found a link to Amazon’s explanation of the new rules.

The new VAT panel on the KDP dashboard

It’s actually much easier to use now. Rather than having to figure out the VAT-exclusive price from your desired list price, you just enter your list price and the system automatically deducts VAT. For example, if I want my book to sell for £1.99 then I simply type in £1.99. It ought to have worked like this from the beginning.

The problem, of course, is that VAT is now 20%. Amazon won’t absorb that price. You have a choice: you can either make your readers pay it, or you can pay it yourself. Put another way, if you continue to sell your £1.99 ebook for £1.99 you will make less money for every sale.

Coping strategies

I’ve had plenty of time to think about this since Amazon sent out their first email about the VAT increase. My initial reaction was to absorb the extra cost myself to avoid hitting my readers with higher prices, but in time my stance changed.

Things aren’t as bad as many authors claim — and I am strongly of the view that we are right in the middle of a golden age for writers — but there can be no denying that an increase in books on the market has driven prices down. I believe that authors should be paid for their hard work. When you think about how much readers gladly pay for paperback or hardback books, ebooks (the same content, differently packaged) start to sound like an excellent bargain.

I priced my full-length novels at £1.99 for a long time. £1.99 was a good compromise between value for the reader and value for me, but now the rules have changed. I think the average selling price of ebooks will increase slightly — and I don’t see that as a bad thing.

For that reason, effective immediately, I have increased the price of my full-length novels on Kindle to £2.49. I think anyone would agree that this is still an excellent deal for the reader, considering that the paperback editions of these novels weigh in at £7.99. And people are quite happy to pay what a novel is worth if they really want to read it; in fact, one school of thought claims that a low price actually damages a book’s chance of success.

Not every author will decide to do this. Some might be better served by keeping their prices as low as possible — which is, after all, a tried-and-tested method of getting a bigger audience. But my books are selling fairly well as they are, and I’m long past the point of underselling myself in an attempt to get more readers at any cost.

Everyone needs to think things through and come up with their own strategy, but I’d encourage authors to think twice before decreasing their prices yet again. We do a skilled and time-consuming job for scant reward, and we deserve to be paid for our efforts.