This July, Edinburgh’s hotels will start to navigate the city’s bed tax, which will apply to everyone staying in hotels, B&Bs, Airbnbs and hostels. The 5% tax will apply to the first five nights of the stay and has been in the works since 2018. The money raised will fund city infrastructure, housing and other general uses.
Edinburgh joins Manchester, where the City Visitor Charge, a £1 per room, per night fee, was introduced in April 2023 in the Manchester Accommodation Business Improvement District. It was reported to have raised £2.8 million in its first year, which was used to drive the tourism sector through marketing events and activities in the offseason.
The two models could not be more different in either implementation or goal. The hospitality sector is watching closely after the most-recent U.K. Budget confirmed that mayors across the country would be allowed to introduce bed taxes at their discretion.
Manchester’s flat tax is simple to administer, but in Edinburgh hoteliers have a number of concerns. Does it apply to the rates they receive from the guest or the 3rd party that might have made the booking at a lower rate and resold it to the guest at a higher rate? Should they be charging the guest on arrival or should it be included in the advertised rates that the hotel is showing online? There is some injustice that it is applicable on the gross amount, and therefore it's not a 5% levy, it’s closer to 6% levy by the time that VAT is included. It’s a higher proportion than it's supposed to be. How is it applied when it is a package price that might have other elements included, be it a spa treatment, a bottle of champagne in the room, or include breakfast or dinner? None of these issues have been addressed, despite the many years between thought and deed.
There is still uncertainty from U.K. hoteliers as to exactly how they are going to administer it. How is this going to be audited? How is there going to be a level playing field for all, given that there is no real clear guidance as to how this should be calculated?
The concept does not take into the account the multiple distribution channels in use. If guests are charged prior to arrival, hotels will have to pay commissions to the OTAs that have delivered that business. Hotels will have to pay circa 20% commission on top of the 5% that we're receiving from the client. So the 5% levy is now 7% when adding VAT & Commission.
Within the distribution element, from a selling perspective, how will hotels choose to position the room? If they apply it on arrival, then it’s not relevant, but what if a hotel has decided to include it in the room rate and pay the 5% charge themselves? There's going to be some confusion to customers, similar to when it became compulsory for hotels to include VAT in their selling price. Given the nature of yielding and the need to remain competitive, it is likely that this tourist tax will just become another “cost-of-doing-business tax”.
There is some small consolation that in Europe, where such taxes are established, there is no EU-wide ruling and each member state is free to regulate the collection and display of such taxes as they see fit. Some countries require that tourist taxes be included in the advertised price while others do not. Although all require that the guest knows in advance of arrival and it’s not a shock at check-in.
There have been additional conversations in Scotland about a price per head based on the kind of accommodation. More for a luxury guest than a hostel guest. The argument will be that the five-star guest can afford it, but should one person visiting Glasgow be differentiated from another based on how much they're prepared to pay for a room? It’s likely that they will be paying into the economy by eating in the best restaurants; should they be also paying the most in the levy when they will only be using the hotel to sleep? Hoteliers in Edinburgh will need to wait until earliest 2029 to see a change to their levy as reviews will only happen every three years.
The other aspect for the U.K. hospitality sector is what happens to the money it has so selflessly collected. Is it just cash that passes in the night, or will it be used to build tourism? Again, the issue varies across the U.K. Being able to introduce a bed tax implies that you have a successful industry capable of supporting it. Doesn’t it make sense to grow that industry? Or is it so resilient — and already at a peak — that it can be used to fund other areas of the economy? Joined-up thinking, or any evidence of thinking, is required to make the argument for more.
Robert Holland is managing director for the U.K. and Ireland at HotelPartner Revenue Management.
This column is part of ISHC Global Insights, a partnership between CoStar News and the International Society of Hospitality Consultants.
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