House of Commons Library

VAT on tourism

Published Thursday, November 15, 2018

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.

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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.[1]

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.[2]  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.”[3] This consultation was launched on 13 March; the deadline for responses was 5 June. The consultation paper noted that responses would “inform future policy development but the government has made no firm decisions about the issues set out in this document.”[4]  The Government’s response was published as part of the 2018 Budget on 29 October. In this the Government stated that “there will be no changes to the VAT or APD regimes in Northern Ireland at this time” and that “the Government will continue to explore ways to support a successful and growing tourism industry.”[5]

Notes : 

[1]    For example, see, HC Deb 1 December 2009 c605W; and, HC Deb 17 March 2015 cc238-241WH

[2]    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

[3]    Autumn Budget 2017, HC 587, November 2017 para 4.89

[4]    HMT, VAT, Air Passenger Duty and tourism in Northern Ireland: call for evidence, March 2018 para 1.8. see also, PQ136109, 23 April 2018.

[5]    Budget 2018, HC 1629, October 2018 para 4.113

Commons Briefing papers SN06812

Author: Antony Seely

Topics: Taxation, Tourism

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