This note gives a short introduction to the way VAT works, and the significance of EU VAT law for setting VAT rates, before discussing the campaign for a lower VAT rate on tourist services.Jump to full report >>
There has been a long-running campaign by the tourism industry for the UK to introduce a rate on VAT below the standard rate of 20% on services supplied to tourists. Proponents have argued that this would allow hotels, restaurants, pubs and visitor attractions to cut prices, boosting sales and employment in this sector, which in turn would encourage growth in the wider economy. European VAT law limits the discretion of any Member State, the UK included, to set lower VAT rates on individual goods and services. That said, there is dispensation for a lower rate on certain supplies associated with tourism: specifically, hotel accommodation, certain restaurant services, and some types of admission charge, including charges for entry to amusement parks.
Several Member States make use of this dispensation to charge lower rates of VAT – between 5% & 15% – on these supplies, including Ireland, which introduced a 9% rate in July 2011. In the past both Labour and Coalition Governments took the position that a reduced rate would not be well-targeted nor cost-effective.
There have been concerns that the tourist industry in Northern Ireland has been particularly affected by the lower 9% VAT rate in Ireland which applies to a number of tourism related goods and services. In the Autumn 2017 Budget the Government announced that it would “publish a call for evidence which will consider the impact of VAT and air passenger duty (APD) on tourism in Northern Ireland, to report at Budget 2018.” This consultation was launched on 13 March, and the deadline for responses is 5 June; this notes that responses to the consultation “will inform future policy development but the government has made no firm decisions about the issues set out in this document.”
 For example, see, Northern Ireland Affairs Committee, Promoting the tourism industry in Northern Ireland through the tax system, HC 50 of 2016-17, 20 March 2018
 HMT, VAT, Air Passenger Duty and tourism in Northern Ireland: call for evidence, March 2018 para 1.8. see also, PQ136109, 23 April 2018.