UK DUP tourism VAT demands
Following the June 8 UK election, the Conservative party is negotiating an alliance with the Northern Ireland Democratic Unionist Party (DUP) to form the next government.
The DUP’s election manifesto included a call for a VAT cut for the tourism sector. Northern Ireland has long maintained that its (UK) 20% tourism VAT rate is highly uncompetitive compared to Ireland’s reduced 9%.
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 UK VAT regime – triggering potential tax competition between the north and south in Ireland, and between the UK countries.
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.
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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 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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