London Tourist Tax and the Impact on the Hospitality Industry

kpmg smallThe British Hospitality Association is leading the campaign to prevent any legislative change which would allow ’The London tourist tax’, and seeking guarantees from Government.

The proposed London tourist tax, recommended by the London Finance Commission, could cost visitors an additional 5 percent per night on all hotel stays. However, the big difference between London and these other world leading cities is the level of tax already imposed on tourists. Visitors to the capital already pay the most tax in Europe, with the World Economic Forum ranking the UK 140 out of 141 countries for tourism tax competitiveness.

With the UK’s rate of tourism VAT already twice the European average and growing uncertainty about the impact Brexit could have on the hospitality industry, critics argue that now is really not the time to give tourists another reason not to visit the capital. We examine the potential impact of the proposals on the hospitality industry below.

Reduced spend in the wider economy

A Greater London Assembly report suggests that if the levy was set at 5 percent per visitor per night, it could generate an additional £240million every year. This could be used by local authorities to help fund local services, such as public transport, street cleaning and policing, which are being put under pressure by high visitor numbers Under Khan's proposals. Local authorities would be given the option of imposing the levy, which would then be used to pay for infrastructure and environmental improvements in the city.

While local authorities would benefit from a boost to their income, this would come at the expense of the wider economy, including shops, restaurants and hotels. Not only will some guests be discouraged from staying the night in the capital, but those that do will have less money to spend on eating out, buying goods in shops and visiting local attractions. Given the business rate rises which are due to come into force in April, any further dent to revenues could be critical for London’s hospitality businesses.

A greater advantage to online platforms

As yet it is unknown whether room sharing platforms like Airbnb and other similar sites will be included within the scope of the tourist tax. This type of platform is already exempt from the UK’s 20 percent tourism VAT rate, making it extremely difficult for hotels, B&Bs and other types of accommodation in the capital to compete on price. If these platforms are not included in the levy, it would give them an even greater advantage over other accommodation providers in the city.

Watch this space

At the moment there is no immediate prospect of a tourist tax in London or anywhere else in the UK as such a move would require new Parliamentary legislation. Similar proposals have been opposed by the Government on the grounds that they would harm the hospitality and tourism sector. However, having received the endorsement of London Mayor Sadiq Kahn, and given calls to devolve greater powers to capital following the Brexit vote, we do not expect these proposals to disappear anytime soon.

How can the hospitality industry prepare?

With such potentially damaging changes in the offing, both with the business rate rises and the tourist tax proposals, it’s essential that hospitality businesses have a tight hold on their finances. This includes proper financial planning and cash-flow forecasting to make sure the business is in a position to withstand the impact. This includes understanding where belts can be tightened and being aware of the additional funding that might be available. But amid the extra pressure, wouldn’t it also be great to identify areas for growth?

KPMG’s Small Business Accounting service gives hospitality business access to all the key financial data they need to overcome the challenges they face. There’s also support with tax and compliance requirements, and funding advice for every business type. This allows hospitality businesses to concentrate on their operations and plan for whatever the future may bring. The first three months of service for all British Hospitality Association members is also free.

Follow the link below to find out more.


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