Calls for hospitality tax cut

THE Government should cut the rate of VAT for holiday accommodation to provide a boost to the industry, business advisers say. Accountants and business advisers, PKF is supporting the tourism industry's call for the cut and say ideally it should ideally be reduced to 5%, the UK's reduced rate of VAT, bringing the UK into line with the majority of EU member states who apply similar reduced rates to this sector.

THE Government should cut the rate of VAT for holiday accommodation to provide a boost to the industry, business advisers say.

Accountants and business advisers, PKF is supporting the tourism industry's call for the cut and say ideally it should ideally be reduced to 5%, the UK's reduced rate of VAT, bringing the UK into line with the majority of EU member states who apply similar reduced rates to this sector.

The call follows the removal of tax breaks on furnished holiday lets announced in last month's Budget and, the phasing out of the hotel buildings allowance - which collectively will cost the industry millions of pounds in extra tax.

PKF director of VAT for East Anglia Richard Wild, pointed out that the UK was one of only six out of a total of 27 EU member states, to levy the full rate of VAT on holiday accommodation.

Currently, VAT is charged at 15%, but will increase to the previous level of 17.5% on January 1, 2010. “The majority of countries in the EU charge a single figure VAT rate, for example, 5 per cent in Portugal, 5.5% in France and 7% in Spain,” he said.

Alex Paul, tourism manager at Choose Suffolk, said a VAT cut would be welcome.

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“Tourism is worth over �1.6bn to Suffolk and therefore is a key part of the local economy. Choose Suffolk works daily with tourism business through the county to ensure that Suffolk is positioned as one of the premier tourist destinations in the country.

“Self catering accommodation is a key part of the tourism offering in Suffolk and naturally we would be welcome any tax changes that would help and support tourism businesses in the future - especially in rural areas.”

From April 6 next year, special tax concessions for furnished holiday lets, originally introduced in the 1980s to encourage UK tourism, are due to be abolished.

Michael Muskett, regional managing partner for PKF in East Anglia, said businesses would face “significantly higher tax bills” and they expected that many owners would sell up and invest elsewhere.

“Trading is tough for all businesses in the current economic climate, but the removal of the tax concessions for holiday accommodation next April is another huge blow to the tourism industry. It comes on top of the phasing out of the hotel buildings allowance, announced in the 2007 Budget, which was crucial for many hoteliers - especially those undertaking refurbishments, renovations or extensions. The extra tax burden will undoubtedly discourage new investment in the sector,” he said.

“The knock on effects will be higher holiday prices and a reduction in the number of tourists - which is bad news not just for tourism operators but for other related businesses in the region.

EU rules allowed member states the discretion to apply reduced rates of VAT, and the majority of countries have applied reduced or super-reduced rates to support their tourism industries, he said.

The Government had “a real opportunity” to give UK tourism a boost and create a level playing field with key competitor holiday destinations such as France, Spain and Portugal.