Richard Asquith of VAT Consultants TMF warns that the UK tourism industry risks being 'undercut' by mainland European competition thanks to lower VAT rates there.
News that Switzerland (Jan 2013) and Ireland (Dec 2012) have both decided to extend their reduced VAT rates on tourism and entertainment services will leave the UK industry struggling with one of the highest tax charges in Europe.
The number of overseas visitors coming to the UK has fallen from 33m in 2007 to 31m in 2012, which is costing the UK economy £1.1 billion per annum (source: The Office of National Statistics). This fall also coincides with the current economic downturn.
The UK is one of the very few European countries which levy the full, standard VAT rate on hotel accommodation, restaurants, theatres and catering services. Most other countries view tourism as a key strategic industry, and subsidise their sectors through reducing the VAT rate charged to visitors and locals.
The table below highlights the differences on VAT rates for tourism and ‘going out’, as against the standard rate for each country:
| Country | Hotels | Restaurants | Theatres, Cinema | Standard Rate |
|---|---|---|---|---|
| UK | 20% | 20% | 20% | 20% |
| Ireland | 9% | 9% | 9% | 23% |
| France | 7% | 7% | 5.5% | 19.6% |
| Germany | 7% | 19% | 7% | 19% |
| Italy | 10% | 10% | 10% | 22% |
All EU member states are obliged to follow the VAT rules as set by the European Commission, which usually require them to have a standard VAT rate above 15%. However, tourism is one of the exceptions where countries may apply locally-set reduced VAT rates.
In the past few weeks, both Ireland and Switzerland have agreed to extend their reduced VAT rate, for one and four years, respectively. They had originally introduced the temporary reductions following Germany’s decision to reduce its hotel accommodation VAT rate from 19% to 7% in 2010.
Richard Asquith, Global Head of VAT, TMF Group commented:
“Whilst Ireland and Switzerland have both raised their standard, headline VAT rates during the current financial crisis, they still see tourism as a key industry for employment so have extended their reduced VAT charge. What started out as temporary initiatives now seem to be becoming permanent – copying the rest of Europe. The UK’s 20% VAT rate on tourism leaves the industry challenged and probably with a further squeeze on their margins as tourists will resist price rises.”
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Not convinced any Hoteliers would drop their prices as a result of VAT rate drop anyway! <br /> ;)