Web music causes VAT headache

A UK music industry initiative to sell downloadable CDs over the internet will present fresh headaches for the taxman, accountants said this week.

Some of the UK’s leading independent record companies are planning to launch their own internet sales ventures.

The Association of Independent Music, which represents UK independent labels such as Creation, whose biggest acts include Oasis (right), is in talks with software developers, media groups and internet service providers about distributing music digitally over the Web.

John Whiting, tax partner at PricewaterhouseCoopers, said the sale of online records raised important VAT issues. ‘It puts into sharp focus the difficulty of knowing where you’re getting the supply from,’ he said.

‘The Revenue is trying to argue that if a server is in the UK then you have a taxable presence. But what if the server is in the Bahamas where there is no tax?’