Lower taxes aiding UK tourism

The UK is reportedly “doing more” to support its tourism industry than other European countries due to having lower taxes, according to a new study by UHY. 

The firm found that the average tourist in the UK pays only 7.8% in tax on a “typical daily spend”, compared to the European average of 11.3%.

UHY said the lower tax rate is due to an emergency cut in VAT on restaurant meals in the UK, adding that the government could keep that low tax rate in place and consider other emergency reductions in taxes on tourism to “ensure that the UK tourism industry recovers swiftly once the lockdown is finally over”.

The UK’s low taxes on tourism was ranked 21st in UHY’s study that covered 25 countries. The firm measured the tax paid on a number of everyday purchases by tourists, including a one night in a four-star hotel in a major tourist city, a meal for two in a restaurant and a bottle of wine.

According to its study, the UK charges “significantly” lower taxes on tourist spending than other major economies in the region, such as France (11.6%) and Spain (10%).

It also found that while the UK has been “quick to make significant tax cuts” to aid the tourism industry, 21 of 25 countries in the study are yet to make any cuts.

The UK’s 5% VAT rate for the leisure and hospitality sector is set to expire and return to 20% at the end of March 2021, however.

Nonetheless, UHY said there was “significant scope” for central and local governments around the world to “stimulate demand” for tourist businesses by cutting taxes on consumption, alcohol duties and local taxes in tourist cities.

Martin Jones, partner and head of hospitality and Brexit at UHY Hacker Young said: “The tourism industry has become an increasingly important part of the UK economy and it’s reassuring to see that the government has implemented tailored support to protect businesses during this turbulent period.

“As the second wave of lockdowns across Europe ends, we will be approaching the key Easter and Summer periods for tourism. The UK could do more to help it through one of the most difficult periods it has ever faced.”

He added: “The government should heavily consider extending the reduced VAT rate past March so that tourists coming to the UK after the second lockdown are able to benefit.”

“This is not only a national government issue – local and regional governments could also do more to help. Some cities levy specific taxes on hotel rooms and suspending those charges for a period would lift a little more of the burden from tourists and the hospitality industry.”