UK Government rejects push by Welsh MPs for a cut in the tourism VAT rate

By David Williamson,

The UK Government has rejected a push by Welsh MPs to lower the tourism VAT rate.

Last year the cross-party Welsh Affairs committee urged the Government to “review” its policy, “with the ultimate aim of reducing the current 20% rate”.

However, the Government has batted away the proposal in its official response to the report, claiming that it would have to either increase borrowing or raise taxes to meet the cost.

It states: “The Treasury estimates that a cut in VAT to 5% for accommodation and attractions would have a cost of up to £2.7bn to the Exchequer. Given the current fiscal climate, these costs would have to be met either from increasing other taxes or from increased borrowing.

“This Government’s priority is to tackle the record budget deficit in a decisive but fair way, to restore confidence in our economy and support the economic recovery…

“However, Treasury ministers have been working closely with the industry to increase both inbound and domestic tourism. The Government does recognise the importance of the tourism and hospitality industry, and is providing additional support to these businesses in a number of ways.”

The Cut Tourism VAT campaign claimed in November that a reduction from 20% to 5% would “create almost 6,000 jobs in Wales, and boost the Welsh economy by over £165m”.

In the committee’s report, fears were expressed that the “refusal of the UK Government to reduce the VAT rate for the tourism industry, unlike most other EU states, could be having a detrimental effect on the Welsh tourism industry.”

The Welsh MPs also called for UK Trade & Investment to have a greater focus on the nation, pointing out that some of the poorest households in Northern Europe were found in West Wales and the Valleys.

They argued UKTI had a “crucial role in helping address geographical wealth inequalities” and pointed to the example of German Trade and Investment to reduce disparities, adding: “UKTI should be mandated by the UK Government to perform a similar function.”

In response, the Government noted that “London has local authorities that rank among the most deprived in the UK, such as Newham, Hackney and Tower Hamlets”. West Wales and the Valleys, it added, have “a significant competitive advantage when attracting capital investment versus most of the rest of the UK and Western Europe” because it is designated as an assisted area where “the maximum proportion of a project cost that can be met by the state is higher”.

The MPs called for a “dedicated trade promotion agency” that could work either as part of the Welsh Government or as a private sector body to drive inward investment projects into Wales.

The UK Government states: “It is for the Welsh Government to determine their structures or ways of working however UKTI would be happy to share its experience is requested.”

A further demand by the MPs is that on UKTI ensures a “regional spread of businesses are included on overseas trade delegations and that Welsh companies are given opportunity to participate”.

The Government responded: “UKTI is surprised at suggestions that Welsh companies are not sufficiently encouraged to participate. It does however, welcome the challenge, and will redouble efforts to ensure that participation is truly representative of the UK.”

It adds that the “Wales Office will inform Welsh MPs and Assembly Members about forthcoming trade delegations so that business can be informed” and urges the Welsh Government to “do the same”.

The committee wants to see the “Wales Office and Welsh Government seek greater opportunities for joint overseas trade delegations”.

The UK Government states it is “fully prepared to engage with the Welsh Government and be involved in joint trade missions, where appropriate.”

The committee also called for the UK Embassy in Argentina to “have a specific strategic goal to help promote the Welsh language in Patagonia and foster relations between the region and Wales.”

In response, the UK Government stated: “The British Embassy works closely with the British Council on promoting both the Welsh language and culture in Argentina. Currently we have a specific focus on celebrating the 150 anniversary of Welsh settlement in Patagonia.”

The MPs were alarmed that Wales has the “third smallest number of international visitors” of any UK region and blamed a “a lack of awareness internationally about Wales’s strengths as a holiday destination”.

They warned of a lack of a “coherent brand for the overseas market” and called for a “strong and clear narrative about the country’s historic and modern aspects and its attractions for tourists”.

The MPs wanted Visit Britain and the Welsh Government’s Visit Wales to have a strategy in place by next month to promote Wales as “a first choice destination for international visitors to the UK.”

In its response, the UK Government states: “From September a member of Visit Wales has been embedded in VisitBritain’s London office to better represent Wales. Visit Britain and Visit Wales are also exploring opportunities to work together on commissioning research, running familiarisation trips for international media and trade, marketing promotions on territory and working with commercial partners.”

Sourced by Wales Online


Tourism VAT cut ‘would benefit’ independent Scotland

An independent Scotland should cut VAT on tourism in order to stimulate the sector, MPs and trade associations have said.

The current rate is set at 20% but the Cut Tourism VAT Campaign would like to see it reduced.

The Scottish Tourism Alliance, the British Hospitality Association (BHA), and several others have all expressed the view that Scotland should cut the rate of VAT on accommodation and visitor attractions from 20% to 5%.

Graeme Dey, MSP, said: “The VAT rate on tourism in Scotland and the refusal of the UK Government to cut it, is just one of many examples of why Scotland’s interests would be best served by being an Independent country.”

Mike Weir MP, who is SNP Westminster spokesperson on Business, Innovation & Skills and Energy and Climate Change, said: “At present VAT is controlled from Westminster which has steadfastly refused to implement a cut, despite the fact that VAT on tourist related business is lower in most other EU nations.

“With Independence, we would have the powers to set VAT rates to benefit our tourist businesses and to focus on a boost for our rural economy.”

Campaigners believe that reduced rate of VAT would enable hotels, visitor attractions and other related tourism businesses become more competitive. It is hoped that this would lead to increased sales and more employment opportunities. The loss of VAT would then be recouped by greater revenues from tourism.

Graham Wason, chairman of the Campaign for Reduced Tourism VAT, says: “If Scotland opts for independence and subsequently cuts VAT on tourism; it would benefit significantly at the expense of the rest of the UK.

“It would also attract more visitors from abroad, so earning export revenue and improving its balance of payments. In these circumstances, the mistake by the rest of the UK in not cutting tourism VAT would be exposed.”

BHA chief executive Ufi Ibrahim said: “Whether or not Scotland opts for independence, there is no doubt that over the medium and long term, its economy would benefit substantially from a cut in tourism VAT – and that conclusion is supported by the Treasury’s own model.

“The consequence of Ireland’s VAT cut was an increase in overseas tourist numbers and revenue which helped to create up to 25,000 new jobs.”

Sourced from TTG Digital

Travel firms escape new VAT burden

Travel firms escape new VAT burdenTravel companies will escape the additional “significant” cost burden of having VAT changes imposed on them under the our Operators Margin Scheme (Toms) – for now at least.Abta welcomed the decision by HMRC to maintain current rules on the operation of Toms in the UK.But writing for today, tax expert Damon Wright warned the industry not to be complacent.

“There may, ultimately, be a sting in the tail, as it looks like the European Commission is re-launching its review of Toms across the EU,” he said.

“However, as Commission reviews can often take several years to complete, HMRC has reserved the right to review its position in a year.”

Abta head of finance, CRM and corporate services Carolyn Watson today welcomed the move by HMRC not to implement any immediate changes to Toms in the UK.

HMRC is due to issue a business briefing with details of its decision on Friday.

Watson said: “This is excellent news for many of our members who might have faced very significant costs if they had been bound to implement the changes resulting from the European Court of Justice rulings on wholesale travel arrangements and global margin calculations.

“It is also really positive that HMRC has taken on board the potential disruption to these operators of making changes which may yet be reversed or amended when the EU Commission eventually reviews the scheme.

“Abta will continue to work closely with HMRC and the EU as they look to review their position on how to apply and amend the scheme in the future.”

The court ruled in September that Toms VAT should apply to wholesale tour operators – who supply other businesses rather than sell to consumers – across the European Union.

Up to now, Toms has applied to wholesale suppliers in some EU countries and not in others, including the UK.

The decision would have affected the margins of inbound tour operators, ground handlers and conference and event organisers whose business-to-business activities have previously been zero-rated for Toms.

It could have also hit many smaller UK outbound tour operators as it may have ended a long-standing arrangement which allows these companies to avoid Toms on the transport portion of a European package holiday (typically the flight).

Sourced from Travel Weekly

Tourism bosses urge Osborne to cut VAT

Butlins guests

On the beach

The travel industry has renewed its call for a cut in VAT ahead of the Chancellor’s Autumn Statement.

In a submission to George Osborne, Industry bosses argue that a cut in the tax would boost exports and reduce the trade deficit

The submission summarises the economic evidence in favour of a reduction and cites Visit Britain analysis that between 2006 and 2011 the UK lost market share in 28 out of its top 33 markets by visitor volume. According to the research tourism is sixth-largest export earner for the United Kingdom and the only sector whose exports are subject to VAT.

The most recent research on Tourism VAT, using HM Treasury’s own economic model, found that a reduction for accommodation and attractions would be revenue neutral and contribute £4 billion each year to the UK economy.

Nick Varney, chief executive of Merlin Entertainments said: “The government is currently promoting its export credentials but has failed to recognise that tourism is an export sector.  It has loaded tourism with taxes, such as VAT, and increased other barriers to a point where we are now losing market share to our rivals.

“Price competitiveness is the single biggest obstacle to more international visits and more people holidaying in the UK.  A reduction in VAT on tourism would go a long way to improve our international standing and help ease the cost of living burden for staycationers.”

Dermot King, director of Bourne Leisure, said: “Government is currently asking the UK tourism industry to compete with one VAT-arm tied behind its back.

”Youth unemployment remains stubbornly high and nearly a million young people are unemployed. Our sector is a major provider of jobs and careers for young people, and we would be able to offer a greater number of opportunities if tourism VAT was brought into line with our EU rivals.”

Sourced by TTG Digital

Hoteliers plead for tourism tax cut

Tourism tax in Northern Ireland should be cut to 5%, hoteliers said.

The relatively high VAT rate of 20% puts the region at a disadvantage compared to the Republic of Ireland and other countries. A reduction would stimulate the industry and leave it well positioned to benefit from strengthening consumer and business confidence in the UK economy, the Northern IrelandHotels Federation (NIHF) added.

Traders claimed not reducing the tax could cost the economy £128 million in lost economic potential over the next seven years.

A report for the Federation said: “Lowering the VAT rate could make NI a more accessible destination for tourists who may not have previously been able to afford a trip.

“It could also encourage those considering a visit to stay longer, upgrade their accommodation, use the savings for expenditure elsewhere in the economy or return for further visits.”

There are 139 hotels in Northern Ireland, raising £340 million in revenue last year.

In a document outlining plans for the future, the Federation said by 2020, they could double the contribution to GDP and generate £1 billion in tourism spend. This would create 10,000 jobs.

More tourism will mean more construction, increased retail spending and greater demand for things to see and do.

The Federation’s report added: “To achieve this growth we need to become more competitive. One way of doing this would be to reduce VAT on accommodation, visitor attractions and out-of-home meals.”

It said: “Northern Ireland’s relatively high rate of VAT puts it at a distinct disadvantage to other European countries – particularly the Republic of Ireland.

“Given the proven responsiveness of visitor arrivals/expenditure to changes in tourism taxes, a VAT rate cut could lead to increased demand and provide a much needed stimulus to the industry – leaving it well positioned to benefit from strengthening consumer and business confidence in the UK economy.”

Changes to the rate would have to be negotiated with the Treasury.

Sourced from Belfast Telegraph

‘Significant implications’ of EU VAT ruling

By Ian Taylor

A European Court of Justice (ECJ) ruling on the VAT treatment of tour operators’ wholesale supplies has profound implications for the UK trade, say tax specialists.

The ECJ ruling, issued on Thursday, comprises a series of judgments on the application of VAT under the Tour Operators Margin Scheme (Toms).

The court ruled that Toms VAT should apply to wholesale tour operators – who supply other businesses rather than sell to consumers – across the European Union.

Up to now, Toms has applied to wholesale suppliers in some EU countries and not in others, including the UK.

The decision will affect the margins of inbound tour operators, ground handlers and conference and event organisers whose business-to-business activities have previously been zero-rated for Toms.

It could also affect many smaller UK outbound tour operators as it seems likely to end a long-standing arrangement which allows these companies to avoid Toms on the transport portion of a European package holiday (typically the flight).

The so-called ‘transport company scheme’ exemption in the UK, introduced in 1996, means tour operators typically do not pay Toms VAT on the flight part of a package contracted from another company.

The ruling also threatens to change the way Toms is calculated – moving from a single annual assessment to a calculation transaction by transaction.

Deloitte VAT partner Daniel Barlow said: “This judgment raises a number of big questions. The first is how much lead-in time the sector will be given to adjust pricing and systems.

“A short lead-in time could erode margins if prices have been set assuming VAT will not apply.

“Second, Toms only applies to tour operators established in the EU. If the wholesale market moves to non-EU locations, this will probably trigger the EU to reform the entire Toms system.”

There is also a question, he said, “whether tour operators will be able to continue the transport company arrangements”.

His view was supported by accountancy firm BDO which calculated the ruling could add 3% to UK tour operators’ and wholesalers’ costs.

BDO head of indirect tax Tom Kivlehan said: “Companies will need to consider whether they can pass on the additional costs to customers.”

In a statement, Abta chief executive Mark Tanzer said: “This could have significant implications for members who are wholesalers and those who take advantage of the Transport Company Scheme.

“The ECJ has also ruled Toms must be calculated transaction by transaction and not on a global basis as is the current case in the UK, which has potentially significant cost implications.”

The judgment came in cases brought by the European Commission against Spain, Poland, Italy, the Czech Republic, Greece, France, Finland and Portugal.

The court decided Toms “must be determined by reference to each single service supplied . . . not on an overall basis”.

A spokesman for Revenue and Customs (HMRC) said: “We are considering the implications of the judgment carefully.”

Abta said: “We will issue further information as soon as we have fully digested the implications.”

Sourced from Travel Weekly

Operators under threat from VAT ruling

By Bev Fearis,

Some UK tour operators might be forced to close and many will have to significantly change the way they do business following the results of a landmark European VAT case today.

As feared, the European Court of Justice has decided that wholesale travel transactions should fall within TOMS, pushing up VAT for many companies and potentially putting some out of business altogether.

Under the current system, wholesalers are able to sell the flight or passenger transport element of an EU package without VAT, under the ‘VAT Transport Company Scheme’.

But once the new rules have come into force, EU travel wholesalers will have to account for VAT from the whole profit margin on sales of EU travel in the country in which they are established.

“For some tour operators the increased VAT cost could be enough to make the business unviable,” said expert Julie Park, MD for The VAT Consultancy.

She said almost all operators in the UK currently rely on the ‘VAT Transport Company Scheme’.

“If you assume an operator has a 50-50 split between the flight/pax transport and hotel element of a package cost wise, their VAT bill will double. Margins are pretty low in this industry in some cases so this could be significant,” she said.

“Tour operators will be forced to review their business to determine if they can adopt an alternative model such as relocating the business to a non-EU location…or the business may prefer to continue operating in the UK but under a disclosed agency model or potentially the alternative ‘Agency Option’ which facilitates the use of net rates.”

Although it could be months before the rules come into force, Park urged operators to start taking action now, given the complexity associated with changes to business models.

Meanwhile, ABTA has asked for a meeting with HM Revenue and Customs to get a clearer picture of this week’s ruling.

Chief executive Mark Tanzer said the decision has “potentially significant trading and administrative cost implications”.

“We will now be looking in detail at the decision and will issue further information to affected members as soon as we have fully digested its implications,” he said.

Sourced by Travelmole