Monday, May 16, 2011

VAT Changes in Ireland For Hospitality Sector

Whilst many in the marketing of Scottish tourism seemed to have dismissed the threat of Ireland as competition we are not so sure. Even though Jedward failed to bring the Eurovision Song Contest back to Ireland for 2011 there are clear signs that Ireland and the operators across the island are not going to sit back and simply squeal.

The argument is made elsewhere in the blogs that Scotland's reliance on the stupidly named "staycation" market is flawed on a whole host of levels but if we extrapolate that Dublin and Ireland's losses in visitor numbers from the UK have been to Scotland's benefit in the past three years then the converse will inevitably be true that any future Irish gain will be rebalancing those scales away from Scotland. There is in my mind some inevitability about this swing. The Irish understand that they have to attract back their main UK market and will push hard to do so. One of the key actions their government has taken is to introduce new VAT incentives with a newly reduced rate of VAT of 9% which will be introduced with effect from 1 July.
2011. This rate applies to a specific range of services in the tourism and service industries and certain specific additional areas as follows:
  • catering and restaurant supplies, including vending machines and take-away food (excluding alcohol and soft drinks sold as part of the meal)
  • hotel lettings, including guesthouses, caravan parks, camping sites etc
  • cinemas, theatres, certain musical performances, museums, art gallery exhibitions
  • fairgrounds or amusement park services
  • facilities for taking part in sporting activities including green fees charged for golf and subscriptions charged by non-member-owned golf clubs
  • printed matter e.g. newspapers, brochures, leaflets, programmes, maps, catalogues, printed music (excluding books)
  • hairdressing services
Most of these activities are labour intensive and the move is designed to encourage activity in these sectors by lowering the cost of business. It remains to be seen if the savings will be passed onto the final consumer but the incentive is clearly mapped out and a differential of 11% between our hospitality VAT rate and the Irish is a large chunk in Euro terms. Add that to any strengthening in the pound over the coming months and many of the "benefits" that Scottish tourism has now taken for granted over the past few years will be instantly eroded. A shift in currency and the VAT regulations could see Scotland be maybe 20% more expensive in the autumn than it is currently product for product?

That is just one of the reasons why we have to be very very careful about a reliance on our domestic marketplaces and a lot of small businesses across Scotland are feeling some of those ripples already.

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