VAT Rate: Hotel Industry Disappointed by Osborne’s Budget

Now the dust has settled on George Osborne’s budget, Phil Benson considers the industry reaction to the unchanged VAT rate for hoteliers.

When the Chancellor of the Exchequer announces a new budget, it is always greeted with a mixed reaction. Some of the measures in the latest budget from Chancellor George Osborne have been welcomed by the UK hotel industry, but some businesses have been left without much to cheer as important issues that have been hindering the hospitality sector appear to have been ignored.

The majority of individual hoteliers, big business and industry bodies have been pleased with the plans to make an immediate cut in corporation tax and the announcement of preparations for the upgrading of broadband networks throughout the country. However, the continued avoidance of VAT has left many in the industry unhappy.

VAT Rate: Industry Reaction

British Hospitality Association deputy chief executive, Martin Coachman is angry that the Chancellor said he wanted Britain to have a tax system that is more competitive for business than any other major economy in world, but refused to act on a VAT tax rate, which is the third highest on hotel accommodation in Europe. Only Denmark and Lithuania charge a higher rate than the UK, with competitors such as Italy charging 10 per cent, Spain 8 per cent and France and Germany charging just a 7 per cent tax rate on hotel accommodation.

Many smaller businesses describe the VAT tax rate as the ‘elephant in the room’ and feel the hospitality sector has been left in the dark by the government. A change to the rate of VAT, they say, would have a significant impact to the industry and help to kick start its current slow recovery.

Big business is also disappointed with the Government, claiming they have neglected the hotel industry. Chair of Bespoke Hotels, Robin Sheppard said, “I hoped there would be more tax incentive for equity injections into hotels and I had hoped that the existing Enterprise Investment Scheme vehicle which encourages people to invest in pubs would be extended into hotels and I can’t see any evidence of that. I think it’s a big mistake.”

Managing director of InterContinental Hotels Group (IHG) for the UK and Ireland, Stephen McCall said he felt let down by the Government. In a year of such hugely anticipated tourism to the UK, the hotel industry is still waiting for the government to get behind the potential for job creation that exists in the sector.

He added, “With one of the highest rates of VAT on hotel accommodation in Europe, the UK shows an open for business sign but in practice, the lights are off.”

Benefits for Hoteliers

The key 2012 budget announcements that will have a particular bearing on the hotel sector include the Chancellor announcing an immediate one per cent cut in corporation tax, smaller businesses will be taxed on the amount of money passing through their own business, rather than the more complicated methods used for larger companies.

Plus, ten major UK cities, which include London, Leeds, Cardiff, Belfast and Birmingham, will receive funding to upgrade their broadband networks with an extra £50 million being made available to smaller cities to upgrade their networks too.

By Phil Benson

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