Is The UK About To Tax Holidays?

After a year of rising taxes in the UK, it looks like holidays might be next on the target list for the UK government.

According to multiple sources, the government is considering giving local governments the power to introduce a ‘holiday tax’ on overnight stays in their areas.

Whilst similar taxes already exist in part of the UK and much of Europe, this has unsurprisingly caused a lot of outrage. Currently, inflation in the UK has meant that costs are incredibly high for businesses, pair that with higher minimum wages and the new business rates, and hospitality venues are already finding it hard to balance costs with profit.

In fact, UK Hospitality estimates that the average business bill for hotels is set to increase by 115% over the next 3 years.

Add a tax on top, and suddenly domestic breaks become unaffordable for many people meaning fewer holidays and an even tougher domestic hospitality economy.

So, is a holiday tax really on the way? And if so, what would it mean?

What Is The Proposed Holiday Tax?

Under the new rules, mayors across England could be allowed to introduce a tax on overnight stays, which would apply to hotels, B&Bs, holiday parks and other short-term accommodation.

Whilst the government hasn’t set a fixed rate for this tax, it has instead decided that mayors will be able to decide what is reasonable based on the area.

Options include a flat charge per person per night or a percentage of the overall stay.

This money will then be used to invest in infrastructure, transport, tourism and local projects to boost the appeal of their local areas. Currently, this is already applied in areas of Wales and Scotland.

How Much Could This Cost?

In response to the news, hospitality companies say that the impact on families could be huge.

According to UKHospitality, a tax of £2 per person per night would add £112 to the cost of a two-week holiday for a family of four. If this was introduced as a percentage, a 5% tax on a £2,000 break would come to around £100.

This would be on top of the current 20% VAT charged on accommodation, meaning that people just wanting to go on holiday in the UK would be charged an effective tax rate of 25% – one of the highest in Europe – just for wanting a night away.

How The Industry Is Reacting

Unsurprisingly, the hospitality industry isn’t happy.

In fact, around 200 hospitality companies, including big names like Butlin’s, Hilton, Travelodge, Haven and Merlin Entertainments, have written to Chancellor Rachel Reeves asking her to scrap the plans.

Their letter had a simple message: “Holidays are for relaxing, not taxing”.

As part of the letter, they also argued that these taxes would hit families who are already struggling with the cost of living crisis and just need a break.

It would also force people to take shorter trips or spend less time exploring new areas, which would have a negative effect on tourist hubs across the UK.

The knock on effect would be felt all across the industry, from pubs to hotels, attractions and shops. This not only impacts local businesses, but also puts local jobs at risk.

Doesn’t This Kind Of Tax Already Exist?

Yes, but not quite in the same way.

In cities like Manchester and Liverpool, a £1 per room per night charge does exist, but this is applied by the hotel, not enforced by local councils.

This gives hotels the decision-making power to add these charges themselves, rather than have them applied by local governments who are removed from the sector.

Abroad, many European cities have tourist taxes, but they also have lower VAT rates for hospitality which help them keep the tax burden down. In the UK, this isn’t something the government is thinking of doing.

Is The Holiday Tax Definitely Happening?

Not yet, in fact, discussions are still ongoing and no final decision is being made.

Even if it does go ahead, local councils will still be able to make a decision around whether to introduce the tax at all, and at what level.

For now, it looks like British holidays aren’t being taxed. But will that change soon? We will wait to find out.