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Tourism VAT cut – Oui, mais…non!

This week, a national tabloid newspaper has called for a cut in VAT for UK holidays in order to boost the UK economy this summer, while at the same time, tourists in France are set to be stung by a rise in hotel tax by a whopping great 500 per cent.

A well-argued debate from constituency MPs in February this year sought a reduction of VAT in the tourism sector. The ten minute response from Treasury Minister David Gauke could however be summed up as ‘No’, with Shadow Treasury spokesperson, Shabana Mahmood, indicating that a future Labour Government would not be inclined to reduce VAT on tourism either.

Among the reasons for rejecting a VAT cut on tourism was that those costs, (estimated to be around £12billion) would have to be met by increasing other taxes.

Such an increase in other taxes would appear to be vindicated by recent events in France where, despite increasing VAT on tourism from 7% to 10% in January, the current French government is proposing a 500% rise in tourist taxes. If approved by the French Senate, visitors to French hotels would pay a tax of €8 per night, rather than the current €1.50. In Paris this figure would rise by a further €2 per bed, per night to pay for transport infrastructure projects.

EU VAT law allows member states to implement certain reduced rates of VAT, including holiday accommodation, restaurant services and tourist attractions. But, when the list of optional reduced rates of VAT entered into force in 2006, the UK opted not to implement those reliefs, and has maintained that position since.

Given the reluctance of both Conservative and Labour Treasury spokesmen, we don’t anticipate any changes to that policy in the foreseeable future.

David Wilson is VAT Associate Director at Baker Tilly

Image used under Flickr creative commons license. Credit: Luke Ma

This was posted in Bdaily's Members' News section by Baker Tilly .