VAT Rate: Industry Growth Hindered by High UK VAT Rate

The 20% VAT rate levied on the UK hospitality industry is in danger of stunting growth – despite the Government’s conviction that this industry is an essential pillar in the UK’s economic recovery.

In David Cameron’s landmark speech on the UK hospitality industry back in August 2010, there was a real sense of optimism – a sense that this new government really understood the pressures and potential of the country’s hospitality industry.

The Prime Minister set an objective to grow the domestic tourism spend from 36% to 50%, but the high VAT rate is likely to make this target unachievable.

The hike in the UK VAT rate may well be a necessary fiscal measure, but the hospitality industry is on the front line of the UK’s competitiveness in the global market.

It is therefore curious that tourism is the only export of the UK which is subject to domestic VAT – and at a rate which is internationally uncompetitive (France, for example, is just 5.5%).

There are concerns that the current VAT rate will deter visitors and discourage domestic tourism, a serious issue that is not clearly addressed in the government’s tourism strategy launched in March.

Fighting Back

Resourceful as ever, the UK hospitality industry is fighting back in a number of ways:

  • A hospitality industry task force on deregulation is now chaired by former Whitbread boss, Alan Parker, and will be administered by the British Hospitality Association.
  • Research by Deloitte, commissioned by Bourne Leisure and Merlin Entertainments, will be used the lead the industry’s efforts in lobbying government for a reduction in the VAT rate on hotel accommodation, with a special task force chaired by tax expert, Graham Wason.
  • The British Hospitality Association is currently detailing the potential impact of a reduced rate of VAT on the restaurant sector.

Prompting the government to rethink their tourism strategy is by no means impossible. There is a stronger sense of collaboration from the coalition government as established in Cameron’s speech. The Department for Culture, Media and Sport has also promised to work with the hospitality task force to reduce unnecessary regulation and collaborate with other government departments as required.

Although a VAT rate reduction for the industry is not currently on the table, the long-term future of UK hospitality looks assured.

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