UK industry leaders are working on proposals that could see the sector swing behind demands for local tourism taxes in return for a cut in VAT on hotel stays when Britain leaves the EU.
However, they want VAT and local taxes on tourists to apply to all accommodation providers including Airbnb-type rentals.
The Tourism Alliance, an umbrella group which unites the UK outbound, inbound and domestic sectors, is drafting proposals for local authorities to tax visitors in return for a reduction in the 20% VAT rate on accommodation to a level in line with other leading destinations in Europe.
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France, Spain and Italy levy 10% VAT on hotel stays, Germany 7% and Belgium and the Netherlands at 6%
Tourism Alliance director Kurt Janson told Travel Weekly: “If the government reduced VAT on accommodation to 10% then added a 5% tourist tax, customers and destinations would both win.”
The Tourism Alliance proposes the Treasury make up the lost VAT revenue by reducing the current VAT threshold which excludes accommodation providers earning less than £86,000 a year.
This means most Airbnb-style landlords do not pay VAT.
Janson said: “The government could make up the shortfall by lowering the threshold for the accommodation sector to £5,000. It would pull everyone into paying VAT, [including] if you’re renting out a place full time on Airbnb.”
He argued Brexit would allow greater flexibility in how Britain applies VAT, pointing out: “In the EU, there has to be an industry-wide threshold. Outside the EU we would have the ability to be inventive.”
Janson said: “We are putting together the argument [for this] with [trade associations] UKhospitality and the B&B Association. We’re all happy with a reduced VAT threshold.”
Hospitality association UKhospitality has led industry demands for a cut in the VAT rate.
Janson also called for a proportion of the existing taxes on tourists, such as Air Passenger Duty (APD), to be channelled to local authorities.
He told a Westminster Forum policy conference on UK tourism last week: “Councils see no revenue [from tourism] and have no money, which is why there are all these calls for tourism taxes.”
The industry move towards relaxing opposition to local taxes on visitors is in line with a report by MPs last month.
This backed calls for a cut in the tax ‘burden’ on UK tourism “to mitigate industry opposition to a tourist tax” or ‘transient visitor levy’.
The report by the All-Party Parliamentary Group for Hospitality notes “increasing enthusiasm” from local councils wishing to follow “major cities in Europe” by levying taxes on tourists.
Edinburgh council voted to introduce a tourist tax in February, citing “increased demand on public services, city congestion, pressure on waste and cleansing services”.
The Scottish government has promised legislation to allow this although no tax is likely to be introduced before 2021.
A survey by Edinburgh found overwhelming support among residents and suggested 88% of tourists would still visit the city, although some business groups challenged these findings.
Birmingham proposes a tourist levy to part fund its hosting of the 2022 Commonwealth Games. The Welsh government has considered a tax, as have Bath, Liverpool and Cumbria councils.
Mayor of London Sadiq Khan advocates a tax, as do several London councils including Westminster, and the London Finance Commission recommended a levy in 2017.
The MPs point out that UK local authorities have lost “60p in every £1” from central government since 2010 and face a funding gap of £8 billion by 2025.
They conclude “the rationale” for a tax “is sound”. But they note “significant opposition from within the industry” and report: “It’s unlikely the sector’s view will change without addressing the wider tax burden.”
More: First UK tourism sector deal welcomed as a ‘game-changer’
Tourist taxes should be ‘treated with caution’ say MPs
