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The Scottish Visitor Levy – anything but administrative simplicity

14 June 2024

On Tuesday 28 May 2024, the Scottish Parliament passed legislation introducing the Scottish Visitor Levy ("the Levy"), commonly referred to as the "tourist tax". The legislation opens the door for local councils in Scotland to introduce a tax on overnight accommodation should they choose to do so. It is expected that providers of overnight accommodation can begin to collect the sum from visitors from Spring 2026, should their local council decide to implement the Levy. All money raised by the Levy will be reinvested in services and facilities largely used by tourists and business visitors.

Last year, we wrote about the then proposed tourist tax as it was making its way through the Scottish Parliament. Having now passed the final stage in Parliament, the Visitor Levy (Scotland) Bill, will soon become law, pending Royal Assent. While some councils, such as Edinburgh, were calling for a flat-rate scheme, Parliament has instead opted for a percentage-based tax charged based on the price of the accommodation, which aligns with their progressive tax system approach.

The first question businesses will have is who does this apply to? In essence, the tourist tax is a transaction tax that is charged on the provision of "overnight accommodation".

What counts as overnight accommodation?

“Overnight accommodation” means any room or area provided to a visitor for residential purposes for a period of at least six hours. This includes hotels, hostels, B&Bs and caravan parks and even campsites but not visiting cruise ships. The Levy will impact those in the hospitality sector, including private landlords and providers of holiday lettings.  Due to an amendment to the Bill in its final stages, providing accommodation in discharge of a council's homelessness duties or accommodation for asylum seekers should not attract the Levy. 

When does a liability arise?

In our previous article, we discussed who the "liable person" is for the purposes of the Levy. This is unchanged.

It's also important for businesses to understand when the liability will kick in. There are two conditions that must be met before the liability will arise. The first condition is that there must be a purchase of a right to reside in overnight accommodation. This is normally at the point where the booking is made. The second condition is that the visitor must "take entry" to the accommodation. Therefore, cancelled bookings and no-shows will not give rise to a tourist tax liability.

Calculation of the tourist tax

The Visitor Levy (Scotland) Bill sets the parameters for how the tax will operate. However, the main point of divergence will be the precise rate of tax, which could make all the difference for businesses. It is up to each local council to set the rate at which the tax will operate, if they choose to implement it at all. Scottish Ministers can pass secondary legislation setting out the maximum rate which local councils can apply.

The amount of tax will be calculated by multiplying the "accommodation portion" of the transaction (after deducting any booking commissions) by the Levy rate (which may vary by local council). The accommodation portion is the VAT-exclusive amount charged for the provision of overnight accommodation (i.e. the VAT-exclusive nightly fee); however, the liable person may deduct:

  • reasonable costs for meals and drinks,
  • parking (unless the area provided is a parking ground, such as a caravan park),
  • laundry facilities or services, and
  • entertainment.

The process won't be simple for providers offering multiple services, such as breakfast and access to other leisure facilities, in addition to the overnight accommodation. The starting point will be to estimate the "reasonable costs for facilities or services provided", and the number of persons accessing those services on the booking. Once the business can ascertain the value of those additional services, it may deduct them from the price of the booking to determine the "accommodation portion" that is subject to the Levy. Businesses may also be keen to understand how the Levy applies to particular pricing models, packages and offers, such as three nights for the price of two.

This model is more complex than other European jurisdictions who charge a flat-rate, per visitor, per night. However, the Scottish Government's view is that it will be fairer to tax visitors in accordance with their means and so, the higher the price for the accommodation, the higher the tax should be.  For example, if the tax rate is set at 2%, businesses might be liable to pay £10 on a  five day holiday booking (assuming £100/night). It is anticipated that businesses will simply pass this cost on to customers by including the Levy as a separate item on invoices.

Next steps

Over the next 18 months, local councils intending to introduce the Levy will be required to consult with their communities, businesses and tourist agencies.

At this stage, accommodation providers may wish to begin to review their existing pricing arrangements and business models to plan for the introduction of the Levy. Since the ultimate liability will fall on the provider of the accommodation, it would be wise to consider how the cost will be determined and collected.

There is also the practical reality of making payments and submitting returns, quarterly. Businesses will need to consider which methods they use to receive bookings. To reduce administration, business may be able to enter into an arrangement with their booking agency to collect and remit the appropriate tax. However, own website and direct bookings would need to be managed carefully. Penalties for late filings start at £100 plus 5% of the tax due, and will escalate if they remain unpaid.

Should you wish to discuss this or any other Tax issue, please contact one of our tax specialists. 

We would like to acknowledge the contributions of Markos Phillips in writing this article.

Further Reading