SNP tourism VAT cut call

Fri 2nd Jun 2017

The SNP has called this week in its UK election manifesto for a VAT cut to tourism industry.  This has long been rejected by the UK government which controls UK-wide policy under EU laws.  However, following Brexit, Scotland will be free to claim for control over tourism and all VAT collections and rates – as it has done for Income Taxes.  This could mean a break-up of the UK VAT regime, and potential tax competition between the UK countries.

UK alone in higher tourism VAT rates

The SNP manifesto includes a call for the UK to reduce VAT rates on tourism services, such as hotels and accommodation.  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 Standard VAT Rate
UK 20% 20% 20% 20%
Ireland 9% 9% 9% 23%
France 10% 10% 10% 20%
Germany 7% 19% 7% 19%
Italy 10% 10% 10% 22%

Under European Union membership rules, VAT may only be set and raised at the national level – which means under the control of Westminster for the United Kingdom.

Potential for UK VAT regime break-up on Brexit

The UK’s departure from the EU would enable the Scottish government to claim control over its VAT rates and revenues.  At present, it only receives 50% of its VAT collections. Scotland could opt to use such VAT cuts to win tourism and other trade from other home countries and trigger a potential tax competition following Brexit.

Scotland took over powers to set Income Tax rates in 2016.  It has no such powers on Corporation Tax, which remains a UK tax controlled from Westminster.



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