The real Amazon Kindle royalties, after taxes and charges

Lots of news outlets are doing the press-release gurgle today, about Amazon introducing 70% royalties for UK authors.

70% royalties for UK authors sounds great, but let’s work out what you actually get. According to my calculations below, 70% actually ends up as 22.5%.

Let’s say you set a price of £4.99 for a Kindle novel. Amazon will automatically add VAT (the UK sales tax) at 15% to the Store price. So the actual price your customer will see is £5.74. You don’t get any of that difference, and the 15% goes straight to the tax man at the Inland Revenue.

So your base figure on which royalties is calculated is £4.99. Let’s be stingy and say your ebook is a chunky one at 500kb in size. That means it could potentially incur a 0.10 pence per megabyte delivery charge over 3G Kindles. Let’s say that happens in one sale out of every two. So, to be on the safe side we have to knock an average of 0.05 pence off your profit. So we’re down to £4.94.

From this Amazon theoretically gives you 70% royalties on £4.94. However, the U.S. government will step in, even though you’re a UK citizen and pay taxes here in the UK. They’ll automatically grab a 30% “withholding tax” from royalties on Kindle sales by non-US resident publishers. So your royalties will actually come down to 40%, or £1.97 profit on a book that sells for £5.74.

The charges don’t end there. Those in the UK can only be paid by cheque, made out in dollars, and your bank will have a hefty cover charge to pay for “processing” a cheque that’s made out in dollars. Currently HSBC charge £6 for cheques up to $100, and £12 for over $100. The Co-op Bank is apparently cheaper at £4/£12. So, on the basis that you’d need to sell 32 x £5.74 books to trigger the $100 minimum cheque payout from Amazon, and that the bank will charge £12 to process the $ cheque, this equals a further “bank tax” of 0.37 pence lost per book.

So you’re now left with £1.60 profit per book. And there’s still the UK tax man to consider. The Inland revenue will want you to pay basic-rate income tax of 20% on your profits (another 0.32 pence lost per book). That leaves you with a final profit of £1.28 on a book that sells for £5.74. You may also want to factor in a small amount for the fraction of broadband / electricity / personal time you’re using to maintain the Amazon DTP account. If you sell five books a week, you might be earning final real-world after-tax profits of £333 per year. Enough to pay for a brand new Kindle every year, and all the ebooks you’re likely to want to read on it, but you’re unlikely to get rich that way.

So your real final royalties on the sale price are 22.5% [actually 26%: see correction below], having lost around 76% of the sale price to government taxes and usurious bank charges. Welcome to the world of Big Government.

Revised figures:

It’s been pointed out that the math was a little wrong. The US tax system takes 30% of the 70%, or 21% of the total price. So they take £1.21. And don’t forget that VAT will be 20% soon. It also seems that there’s a download charge for all sales in the USA (not the case in the UK), even if you only have a wi-fi Kindle. So let’s do the calculations again:

You set the price: £4.99. 20% VAT increases it to £5.98.
Minus hypothetical 0.05 pence deliver fee = £4.94
70% royalties on £4.94 = £3.46
Minus £1.21 US Tax = £2.25
Minus 0.37 per book $-to-£ bank charges = £1.88
Minus UK income tax = £1.56 (final profit)

£1.56 = 31.5% of the Amazon DTP price you set. 26% of the actual selling price.

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6 thoughts on “The real Amazon Kindle royalties, after taxes and charges

  1. For those selling via Lulu + eBay, the final profit on a £5.74 book is about the same, after postage. Only via that method you get instant payment in your PayPal account, albeit at the cost of a certain about of time and effort to list and process book sales.

  2. I think the profits are even a bit less than that… VAT is actually 17.5% at present in the UK, not 15% – even worse it goes up to 20% in the New Year.

    Oh and Customs and Excise and the Inland Revenue have been merged into HMRC

  3. Actually I had worked it out while writing the article, based in the price I set and then the price I see appear on the UK Amazon Kindle Store – and found that on my prices, Amazon are adding 15%.

    • Hmm – that’s a bit weird, I wonder why they’re doing that?? It was down at 15% temporarily for a bit but that was almost a year ago and otherwise it’s been 17.% for ages. Oh well, here’s hoping they keep it at that even when it jumps up to 20%. Just wish they’d not charge VAT at all on eBooks though!

  4. Regarding 15% VAT — from what I am reading* on the Amazon DTP Royalty Pricing Page — VAT is charged at the Luxembourg rate – not the UK rate – (presumably because Amazon Europe is HQ’d in Luxembourg) and that is why the VAT charged by Amazon.co.uk did not change back to 17.5% nor will go up tp 20% in 2011, which is a good ting.

    What I am not at all clear about is whether sales from Amazon.co.uk have US withholding tax levied on them. .

    *
    quote
    the List Price, plus 15% (the statutory Luxembourg VAT rate) for sales to UK customers
    endquote

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