If Britain is indeed open for business, why is the UK not making greater use of the VAT reduced rate band in hospitality and leisure?
Of the 28 EU member states, only Denmark charges more VAT on hotel accommodation than the UK; 25 of these member states apply VAT at the reduced rate to hotel accommodation, with more than half of all member states also applying VAT at the reduced rate to restaurant and catering services.
Of course, it is profoundly difficult to compare the economic impact of a reduced VAT rate for tourism with the different tax regimes in other member states. Other countries will charge a room tax and apply VAT to public transport, and will have different minimum wage obligations and available tax reliefs and social security obligations.
However, in Ireland, the reduced VAT rate for the tourism industry has been so successful that it has been retained as part of the Irish Budget measures for at least a further year. Ireland introduced a reduced VAT rate of 9 per cent in 2011 and this has since been credited as creating an estimated 45,000 jobs. This year alone, Ireland has seen a year on year increase of 11 percent in overseas visitors, and a 9 per cent increase in revenue for the same period.
Whilst it could currently be contended that the weak pound will arguably see an increase in tourism to the UK, with the vast majority of EU member states administering lower VAT rates for tourism businesses, and reportedly seeing considerable benefits of such, the need to look again at this important issue does seem compelling.
For more information please get in touch with David Wilson, or your usual RSM contact.