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News : UK Economy Last Updated: Feb 15, 2013 - 7:35 AM


UK tourism struggles against continuing European VAT subsidies
By Finfacts Team
Feb 15, 2013 - 7:26 AM

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News that Switzerland (Jan 2013) and Ireland (Dec 2012) have both decided to extend their reduced VAT rates on tourism and entertainment services will leave the UK industry struggling with one of the highest tax charges in Europe, according to a UK business services group. 

The number of overseas visitors coming to the UK has fallen from 33m in 2007 to 31m in 2012, which is costing the UK economy £1.1bn per annum (Office of National Statistics). This fall also co-insides with the current economic downturn.

UK tourism and entertainment attract high VAT burden

The UK is one of the very few European countries levying the full, standard VAT rate on hotel accommodation, restaurants, theatres and catering services. All other countries view tourism as a key strategic industry, and subsidise their sectors through reducing the VAT rate charged to visitors and locals.

All EU member states are obliged to follow the VAT rules set by the European Commission, which usually requires them to have a standard VAT rate above 15%.  However, tourism is one of the exceptions where countries may apply locally set reduced VAT rates.

Ireland and Switzerland follow Germany’s lead on VAT subsidies

In the past few weeks, both Ireland and Switzerland have agreed to extend their reduced VAT rate for one and four years, respectively.  They had originally introduced the temporary reductions following Germany’s decision to reduce its hotel accommodation VAT rate from 19% to 7% in 2010.

Richard Asquith, global head of VAT, TMF Group commented: “Whilst Ireland and Switzerland have both raised their standard, headline VAT rates during the current financial crisis, they still see tourism as a key industry for employment so have extended their reduced VAT charge.  What started out as temporary initiatives now seem to be becoming permanent - - copying the rest of Europe.  The UK’s 20% VAT rate on tourism leaves the industry challenged and probably with a further squeeze on their margins as tourists will resist price rises.”

The table below highlights the differences on VAT rates for tourism and ‘going-out.’

Country

Hotel VAT Rate

Restaurant VAT Rate

Theatres, cinema

Standard VAT Rate

 

 

 

 

 

UK

20%

20%

20%

20%

Ireland

9%

9%

9%

23%

France

7%

7%

5.5%

19.6%

Germany

7%

19%

7%

19%

Italy

10%

10%

10%

22%

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