Tourism tax “will cripple businesses in the industry leaving thousands out of work”

A tourism tax is being touted in several regions across the UK, theoretically to bolster the services tourists use. But not everyone is supportive.

The idea of a so-called tourist tax has gathered momentum in recent months, as several UK regions have touted the idea to help generate income for local services and infrastructure. In many cases, money generated from the tax is intended to help restore and maintain the local area and fund public services and attractions.

In other parts though, the tax is being used to actively deter tourism – as was the case for Amsterdam’s tourist levy. In this instance, authorities are currently considering further increasing Amsterdam’s tax to discourage the binge-drinking tourism which has plagued the city for decades. Currently, the tourist levy is 7% plus an additional €3 per person per night as well as €8 per person daytripper tax for cruise ship passengers.  

Closer to home, Manchester became the first UK city to introduce a tourist tax in April, charging visitors £1 per room per night. And Scotland is currently in the throes of introducing a Visitor Levy (Scotland) Bill through parliament.

In areas such as the Lake District, introducing a tourist tax would be more about discouraging tourism due to conservation and addressing environmental concerns rather than generating additional income.   

Other UK regions and areas currently considering introducing a tourist tax include:

• North Norfolk
• Wales
• St Ives, Cornwall
• Bath, Somerset

Tourist taxes are highly controversial. Some hoteliers and hospitality businesses in Wales, for example, fear it could put people off visiting the area, which would dent the local economy. Others believe more regions should introduce the tax, given the additional income it could generate.

We asked accountants who work with hospitality businesses what they think and how a tourist tax in their area could impact clients.

Tourist taxes may be necessary in some areas but will be expensive and complex to administer

Samantha Perkin, FMAAT, Director, Zamu and Lecturer, Cornwall Business School

Tourist areas such as Devon & Cornwall need substantial extra spending on areas like hospitals and roads and public transport to help manage the massive increase in numbers in the summer months.

There are two basic ways to impose a tourism tax:

Flat nightly rate as introduced by Manchester BID (Business Improvement area) which now charges £1 per night per room extra, covering 74 businesses and hopes to raise £3 million a year.

However, a flat rate does not reflect the price being paid – a £1 charge on a £2,000 a night suite is of little consequence, but to a family renting an Air BNB room, the tax is financially a heavier burden.

Percentage extra which adds a percentage extra to the bill. This tax would be shown separately on the bill but is not recoverable like VAT. Edinburgh is considering this at a rate of 4% of accommodation-only charge.

A flat nightly rate is easy to manage in areas like Manchester BID as there are a limited number of businesses involved but if it were imposed in Cornwall, where one in five jobs are supported by tourism sector with an estimated annual income of £2.4 billion, administration and collection would be complicated and expensive.

There are many complex issues to consider, too:

• A room-only booking would be less than B&B booking and could lead to tax avoidance eg, a free room with every £100 breakfast.
• Who would collect the tax? How would it be managed and administered? What about penalties?  If council-led, substantial investment would be needed.
• How would tourist tax be effectively ringfenced to Cornwall’s benefit?

If Cornwall were to implement a tourist tax, visitor numbers would be affected. An extra £40 tax on an average hotel bill may not sound much, but on top of spiralling food and fuel costs, it will mean families will reduce spending elsewhere.

Cornwall is also worried that the price sensitivity felt by everyone in the current crisis, along with recovery from Covid/Brexit and ongoing staffing issues will create another challenge the industry will need to work with.

Verdict: A tourism tax may be necessary in some areas but could be complex and expensive to administer.

Tourism tax “will cripple businesses in the industry leaving thousands out of work”

Laura Day-Henderson, Founder, More Than Bookkeeping Ltd

The hospitality industry is still recovering from the Covid-19 pandemic, with many businesses struggling to stay afloat. This, coupled with the cost of living crisis, shortage of workers post Brexit, and increased wages has meant prices for hotels have sky-rocketed despite businesses profits actually dwindling.

Anything that may impact consumers being willing to fork out for a hotel stay – such as the introduction of a tourism tax – will cripple businesses in this industry leaving thousands of people out of work.

More should be done to support the hospitality sector’s continuing recovery post-Covid and post-Brexit rather than dealing them another blow. The sector helps drive the local economy by facilitating guests from other parts of the UK and the wider world to visit and spend money in the local area whilst also being a significant source of employment.

Many hospitality businesses also double up as community spaces providing space to work, conference rooms, a meeting place, local eateries and emergency accommodation and refuge locations. They are a pivotal part of the community, and so need to be protected and supported, not driven into liquidation.

Verdict: Introducing a tourism tax will cripple businesses in the sector, leaving thousands out of work.

A tourist tax could improve the visitor experience in some ways

Lauren Harvey, MAAT, Assistant Accounts Manager, The Accountancy Partnership

A tourist tax aims to raise funds to improve the visitor experience, and this could, in theory, have long-term benefits for all local hospitality businesses that rely on attracting tourists.

However, a potential consideration is the fact that accommodation providers will be responsible for collecting the tax, affecting businesses differently. For instance, hotels might have to adjust their pricing to stay competitive, whereas restaurant owners won’t have that consideration. Smaller accommodation providers, such as an Airbnb host, may also find it harder to compete with larger hotel chains.

Also, hospitality and leisure businesses are already under a lot of strain as the high cost of living means they’re likely to see fewer people travelling for pleasure. Adding to this pressure by turning them into tax collectors could see a further impact on their businesses.

The tax is collected from the customer by the business, so it’s important to make sure that this is clearly separated from their income figures. Accountants will need to be extra vigilant when working with clients in affected regions to make sure the tourism tax amounts are accounted for correctly and paid to the right place.

Verdict: Tourism tax could raise funds to help improve visitor experience, but turning hospitality businesses into tax collectors will do little to improve existing strain on the sector and could muddle the books.

A tourist tax would increase administrative burden and ultimately result in revenue reduction

Nicola Mason, MAAT, MD, Contractor Unlimited

I’m based in Liverpool and tourism is a huge part of the economy here. Sadly, a lot of businesses in the hospitality industry had to shut during Covid and those that have reopened haven’t fully recovered. A tourism tax could damage those left behind catastrophically. Why implement a tax on tourism at all? As a whole, the sector needs to recover in all areas for economies to grow.

Tourism tax would also cause additional administration and a reduction in revenue can never be good for business. Add this to a difficult economy, increased minimum wage, corporation tax and NI and you can see that the pips are starting to get squeezed too tightly.

Verdict: A tourist tax would increase the administrative burden and ultimately result in revenue reduction.

Annie Makoff is a freelance journalist and editor.