99p music downloads threatened by VAT crackdown

George Osborne's budget announcement seeks to tackle a VAT loophole that has been losing the UK an estimated £1.5 billion a year. Credit: Terry Scott/NEWZULU/PA Images

The future of the 99p music download looks bleak because of a change in VAT rules as the Treasury bids to reclaim more than £300 million in tax from tech giants like Apple and Amazon.

Chancellor George Osborne announced in last week's budget that multinational firms will have to pay the UK's standard 20% levy on all digital sales to British customers from next year.

Both Apple and Amazon currently benefit from a lower VAT rate on music downloads from their online stores like iTunes and Google Play by operating out of Luxembourg.

The changes are expected to see the 99p rate for a single download rise when the new rules take effect in January to end the loophole.