The tourist tax challenge

When I first covered news of a potential tourist tax in England, I naively didn’t think it was particularly significant. I figured that the appetite to travel would not be softened by a minor, additional charge. Provided the funds would go towards improving the visitor experience, this could also increase dwell time and ultimately spend. Having since spoken with a number of hoteliers, I’ve learnt that a potential tourist tax is far more complex than I initially perceived. 

Firstly, the mechanics of executing an additional charge. As I understand, most property management systems are built around a fixed VAT rate; for the UK, this is commonly 20 per cent. It is generally calculated on the total transaction value with exemptions for longer stays.

A tourist tax, however, introduces conditional parameters. In England, the details remain unclear. It is not yet known whether any potential tourist tax would be applied as a flat fee or a percentage of the stay, which local authorities would implement it, or how it might interact with existing VAT and booking systems.

Though take Edinburgh, for example, where a five per cent visitor levy will apply from 24 July 2026, capped at the first five nights of a stay. The levy is calculated on the accommodation cost only before VAT, and the levy itself is also subject to 20 per cent VAT. This requires systems to calculate a percentage on the pre-VAT rate, cap it at five nights, and then apply VAT to both the room and the levy amount. 

So if an operator’s PMS, booking engine and other owned channels are not configured to sell directly, this increases reliance on OTAs – a second challenge. The levy must be part of the advertised price on OTAs and also on a hotel’s website; if the headline rate is therefore more expensive, this could theoretically lead to higher OTA commission fees.

On both counts, this will disproportionately affect the independent boutique sector far more than the large branded groups.   

“It’s inevitable that the holiday tax will suppress demand in places which are already struggling, and will reduce margins in places as well,” says Allen Simpson, CEO of UKHospitality. “Hotels pay about 75 per cent of their profits in tax, whereas the average bank pays about 35 per cent. This is already, by a very large distance, the most taxed sector in the economy. It’s not clear to me that adding another tax is anything other than incredibly stupid.” Watch the full interview here.  

I’m no technology expert, though I am eager to understand the potential challenges a tourist tax could present for hotels across England. If you have insight or practical examples of how your property is preparing for, or managing a visitor levy, please get in touch using my contact details below. 

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