It has been described by opponents as an unwanted and regressive levy that could be damaging to the tourism business. So, just what would the impact be of a so-called ‘tourist tax’ on accommodation providers in Aberdeen City and the Shire, who have faced some of their most difficult operating conditions in recent years?
A plummet in business trade due to the oil crash, coupled with an explosion of new hotel chains opening in Aberdeen, have placed unique regional pressures on the North-east hospitality sector, unseen by counterparts trading in other areas.
With moves underway for the transient visitor levy (TVL) to be introduced in Scotland’s capital – the first part of the UK seeking to impose the tax – there has been speculation, and some concern, that this could pave the way for the tax to be rolled out to other parts of the UK.
The development is being eyed cautiously by observers.
A survey by the Federation of Small Businesses (FSB) found three-quarters of respondents were against the tax, fearing it will be off-putting to tourists.
Meanwhile, trade representative body UK Hospitality argues that national governments should not devolve powers to local authorities to introduce local tourist taxes. It wants councillors to look for other ways of raising revenue to support tourism, claiming UK accommodation providers already pay amongst the highest VAT and property taxes in Europe, and that the tax will cut visitor numbers.
Aberdeen’s hotel occupancy rates dropped by a third when the region suffered the effects of the oil price slump across the economy and in 2017, Aberdeen recorded the lowest hotel occupancy rate in the UK at 63.4%.
The industry responded, and adapted, and a greater focus has been placed on leisure tourism. There are signs that the average room rate has stabilised, but the opening of new hotels means that the room count in Aberdeen continues to grow, and it’s expected to rise by 10% by the end of 2019.
Could the TVL – already imposed at many international destinations - be the next hurdle the sector has to face up to if city councillors look on the levy as a way of generating much needed income in a climate of budgetary pressures?
Earlier this year, councillors in Edinburgh voted in favour of TVL proposals which include a £2 per night charge added to the price of any room for the first week of a stay. The levy would apply to "all paid accommodation" across Edinburgh, including hotels, B&Bs, Air B&B style short-term lets and hostels, and it's estimated the tax could raise up to £14.6m per year for city coffers.
The new tax won't come into effect until the Scottish Parliament has passed enabling legislation, and this is unlikely to happen before next year.
Rhys Jones, business advisory manager at Aberdeen-based accountancy firm Hall Morrice said that, while there is no indication of plans for a tourist tax for the region, the hospitality sector should nevertheless be watching developments in the Scottish capital.
Mr Jones said: “Whether or not the tourist tax is rolled out here, it’s clear that there are changes and challenges for the region’s operators due to market changes and increased supply of rooms.
“UK Hospitality has flagged up that UK accommodation providers are subject to some of the highest VAT and property taxes in Europe, and that a tourism tax would impact on visitor levels.
“They believe the introduction of the TVL will disadvantage the hotel sector and that it will struggle to keep up with performance across the rest of Europe. They have also warned that the tax could cost Scotland £175m in lost business including potentially £45m in Edinburgh alone.
“For these reasons, it is a very good time for accommodation providers to take stock. They should be considering are their financial systems up to date, and is the business operating as tax effectively as it could?
“There are steps that hospitality operators can take to help future proof their business. Given the difficulties this sector has come through, it’s particularly important to seek professional advice to build resilience.
“Your accountant is there to help you manage change, to balance the books and keep you on the right side of HMRC. We’re here look at your business as a whole and be a trusted partner in its success and development.”
Founded in 1976, Hall Morrice is one of Scotland’s leading independent firms of chartered accountants and has offices in Aberdeen and Fraserburgh. Based at 6 and 7 Queens Terrace in Aberdeen, Hall Morrice can be contacted on 01224 647394 or at accounts@hallmorrice.co.uk
