UK tourism VAT review
- Mar 12, 2018 | Richard Asquith
Today’s UK Spring Statement included an announcement of a consultation around Northern Ireland cutting its 20% tourism VAT rate to match Ireland’s 9%.
This was an election manifesto promise of the DUP, which is now in a power sharing arrangement with the Conservative government. As part of the DUP 'confidence and supply' deal, the Conservatives committed to review tourism VAT.
This demand has long been rejected by the UK government which controls UK-wide policy under EU VAT laws. However, following Brexit, Northern Ireland will be free to claim a reduced regional tourism rate. This could mean the break-up of the unified UK VAT regime – triggering potential tax competition between the north and south in Ireland, and between the UK countries. Scotland already controls the independent setting of income tax rates, which it recently raised on higher earners above the UK rate.
UK alone in higher tourism VAT rates
Currently, the UK is one of the few countries in the EU to charge full VAT on such hospitality services. Countries such as Ireland and Germany have long provided a tax subsidy to this key sector, with considerable boosts in job creation and international visitor numbers.
|Country||Hotel VAT rate||Restaurant VAT rate||Theatres, Cinema VAT rate||Standard VAT rate|
Potential for UK VAT regime break-up on Brexit
The UK’s likely 2019 departure from the EU would enable Northern Ireland and Scotland to claim control over its VAT rates and revenues. Northern Ireland could opt to use such VAT cuts to win tourism and other trade from the Republic and other home countries. This could trigger internal UK tax competition following Brexit.
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