ResponsibleBusiness
Do tourist taxes add up?
Visitor levies have been floated in many areas of the UK. But how will the charges affect businesses and how can they adjust?
Image: iStock
Words: Richard Crump Photo: Getty
The idea of a tourist tax — a small levy added to overnight stays — has long been a feature of travel in many European cities. It now looks set to become a reality in the UK, too, with London, Manchester and Edinburgh among those debating or piloting schemes.
In late 2025, the UK government began consulting on an overnight visitor levy, which would allow certain local authorities — initially mayoral strategic authorities such as Greater London and Greater Manchester — to introduce a charge on overnight stays at accommodation providers.
For the hospitality sector, this “raises immediate questions that should be considered early on”, says Zoe Powell, director of travel, hospitality and leisure at Xeinadin.
Businesses would need to make quick decisions about whether to absorb the charge to remain competitive, pass it on transparently to guests or build it into room rates — each with implications for margins, booking behaviour and customer experience.
For finance teams and advisers, it also raises questions around systems readiness, invoicing, VAT treatment and reporting, particularly for SMEs operating with tight cash flow and limited administrative capacity.
“Businesses need certainty on how the levy is set, who collects it, whether it falls within the scope of VAT and how it should be presented on invoices,” Powell says. “Even small charges can trigger changes to booking systems, accounting software and staff processes, all of which take time and money to implement.”
Practical questions
Most major travel destinations already have a visitor tax that typically ranges from €1.50 per night to a percentage of a hotel bill. The UK government plan will align visitor hotspots with cities such as Paris, which charges €5 a night, and Venice, which imposes a €10 entry fee.
Levies are already gaining traction in the UK. In Scotland, Edinburgh is introducing a 5% tourist tax on the cost of a room per night from July 2026, while local government in Wales will be able to charge £1.30 a night from April 2027. In England, Manchester has implemented a £1 night charge per room.
The government has said that the new levy would be “modest” and apply to hotels, B&Bs, holiday lets and other paid accommodation, with the money raised used to fund transport, infrastructure and the wider travel economy.
The consultation is considering everything from how the levies should be designed, whether a cap on them is necessary and which exemptions should apply.
While the government consultation is ongoing, Powell says accountants and advisers should encourage hospitality clients to prepare now “by reviewing financial planning and pricing strategies, understanding how it may affect occupancy forecasts, and updating systems to track, collect and remit levies”.
The case for tourist taxes
The policy rationale is straightforward: tourism can place pressure on local services, from transport and street cleaning to policing and public spaces. Therefore, a small contribution from visitors can help fund those services rather than relying solely on local taxpayers.
“A tourist tax is, in theory, a modest attempt to make visitors pay for the pleasures they impose. Sunlit streets and medieval lanes do not sweep themselves,” says Dr Martin Lukavec, senior lecturer at the London School of Business and Finance.
“A small, predictable charge that funds the very things tourists come to enjoy can be self-supporting; a hefty one that simply plugs budget holes is self-defeating.”
While several British leaders have welcomed the move — London mayor Sadiq Khan called the measure “great news” for the UK capital — some in the hospitality sector are concerned that even a modest levy is another friction cost in a highly competitive market.
Kate Nicholls OBE, chair of trade association UKHospitality, warns the “damaging holiday tax” could cost the public up to £518m and have knock-on impacts for the wider hospitality sector.
“It will effectively increase the rate of VAT to 27% for people who want to enjoy a holiday in the UK, making it one of the highest tax rates for consumers in Europe,” she says. “This cost will be passed directly on to consumers.”
Image: iStock
Businesses need certainty on how the levy is set, who collects it, whether it falls within the scope of VAT and how it should be presented on invoices.
How will businesses cope?
Accommodation providers already operate with tight margins, so the cash flow and pricing implications are immediate. If the levy is charged per night, businesses will need to decide whether to build it into advertised prices or show it separately at checkout.
Each approach has implications. Bundling it into room rates can reduce ‘sticker shock’ but may make pricing appear less competitive on booking platforms; separating it may protect headline pricing but can lead to customer frustration — and a greater risk of disputes at the point of payment.
“Transparency about the fees that are applied is absolutely critical,” says Andrew Harrison-Chinn, chief marketing officer at global travel platform Dragonpass. “If you absorb that in the booking fee, you need to explicitly call out that that is a levy that goes towards tax. It is about giving the consumer visibility.”
Crucially, it is not just the tax itself that matters but the administrative burden of collecting it. For some businesses, the biggest issue will be systems and compliance requirements. Collection processes may need to be updated and booking software reconfigured.
Smaller operators such as guesthouses, B&Bs and serviced accommodation providers may not have the same administrative capacity as larger hotel chains.
“Operationally we find the biggest challenge is implementation,” says Harrison-Chinn. “How someone captures the transaction, how they segment the transaction and how they price it in the right way.
“The reality for many of these small organisations is that through the cost-of-living crisis they aren’t earning as much, capacity is being squeezed and they need to have the systems in place that make it effortless so that consumers aren’t going through hoops to make this transaction.”
Eroding profits?
There is also the question of how costs are absorbed or passed on. While the levy may technically be paid by the visitor, businesses are likely to bear indirect costs through administration, customer service time and potential booking impacts.
In practice, some businesses may end up absorbing part of the cost to stay competitive, while others may have little choice but to pass it on.
“There are a few chains who have a big chunk of the market and the effect on them will be relatively small because they already have healthy margins,” Lukavec says. “For the independent hotels it’s much worse because they compete on price and have very little breathing space, so they will have to pass it on.”
At the same time, it is more difficult for smaller operators to be able to price competitively as they haven’t got the benefits of cross-subsidisation that many of the large organisations have.
“It erodes their margins,” says Harrison-Chinn. “They need to cut back in areas or find ways to subsidise that or pass it on to the consumer. Many hospitality companies use their food and beverage as a lever to generate significantly more margin, so the cross-sell is super important.”
