Visitor Levy Bill: business and regulatory impact assessment

Business and regulatory impact assessment (BRIA) that looks at the likely costs, benefits and risks of the Visitor Levy (Scotland) Bill.

6. Other Impact Assessments

6.1 Scottish firms impact test

6.1.1 As discussed in the analysis of the options, the introduction of a visitor levy is likely to have various impacts on Scottish firms providing commercial accommodation in local authority areas that choose to introduce a visitor levy. Other non-accommodation businesses may also be affected in these areas, and these are considered in the Scottish firms' impact test.

6.1.2 The Scottish firms' impact test sets out:

  • details of Scottish Government engagement with accommodation providers that underpins the compliance costs assumptions as set out in paragraphs 4.9.25 to 4.9.33 above;
  • considers the impact a visitor levy could have on the competitiveness of Scottish businesses within the UK and elsewhere in Europe and;
  • how many accommodation providers may be affected in different parts of Scotland should local authorities choose to introduce a visitor levy.

Summary of key messages from engagement with accommodation providers


6.1.3 The Scottish firms impact test is informed by engagement with accommodation providers from late 2018 to late 2022. This engagement was necessarily paused during the Covid-19 pandemic. The first phase was a National Discussion with stakeholders within the tourism industry such as accommodation providers or their representatives and local authorities from November 2018 to January 2019 which covered a range of objectives around the impact of a visitor levy.

6.1.4 Following this exercise, a two-part targeted piece of engagement was undertaken for the purposes of informing this BRIA with 20 accommodation providers focusing on specific research questions as listed below. The engagement consisted of semi-structured interviews which took place between July and September 2019 and a follow-up survey which ran between November and December 2022. The research questions below served as a guide for the semi-structured interviews, and these were then supplemented further with focused questions in a follow-up survey.

Research questions

6.1.5 Two main methods were used - a semi-structured interview of 20 respondents, and an online survey completed by 9 of the original 20 respondents. The BRIA guidance states that between 6-12 businesses should be consulted on the impact of any proposed legislation or new regulation. These accommodation providers were identified through engagement with the Association of Scottish Self Caterers, the Federation of Small Businesses, and UK Hospitality. We have also interviewed representatives of other sectors potentially affected by a visitor levy including Hostelling Scotland, and the Caravan and Motorhome Club.

6.1.6 The following research questions were tested with accommodation providers:

1. What are the potential new costs to the accommodation sector associated with the visitor levy in terms of collection and remittance? And what are the principal sources of such costs?

2. What is the impact of the potential new costs to the accommodation sector?

3. To what extent do these costs vary by both accommodation provider type and design of a visitor levy? What approach to the basis of the charge would be most appropriate and minimise costs of collection for accommodation providers? Should the decision on the basis of charge and the rate be determined nationally or locally?

4. What approach to collecting a visitor levy would be most appropriate and minimise costs of collection for the accommodation provider?

5. How will local authorities use revenues from a visitor levy to support local tourism? What items of local authority spending should be supported by the revenue generated by a visitor levy?

6.1.7 Characteristics of accommodation providers surveyed

6.1.8 On the 20 semi-structured interviews, five different types of accommodation providers were contacted across Scotland: hotel (12); self-catering (5); inn (1); hostel (1); caravan/ motorhomes/ campsites (1). Respondents' businesses were located across the following areas: Edinburgh city and Fife (6); Highland (4); Perth and Kinross (3); Moray (1); Aberdeen city (1); Glasgow (1); Argyll and Bute (1); Scottish Borders (1); and others, across Scotland (2). The interviews lasted approximately 60 minutes per session.

6.1.9 The online survey saw nine self-administration submissions out of 20 invitations (representing a 45% response rate) from hotel (6) and self-catering (3) accommodation providers. Five out of the nine accommodation providers operated from only one location in Scotland, namely, Argyll and Bute, Fife, Highland, Perth and Kinross and Scottish Borders; three operated from between two to nine locations in the city of Edinburgh, East Lothian, and Glasgow city, including some of those previously mentioned; and the remaining one, operated in over 50 locations including some of those already indicated and in Aberdeenshire and Moray.

6.1.10 The annual turnover (in 2021-2022) of the accommodation providers surveyed varied widely. Two businesses had annual turnover of over £10 million, five recorded a turnover of between £1 million to £5 million and two indicated annual turnovers of less than £85,000. In terms of the proportion of annual turnover coming from sales of accommodation (excluding ancillary services), two accommodation providers indicated that less than 50% of their turnover was from sales of accommodation, a further two responded between 50% to 79%, four indicated 80% to 94% and three stated 95% to 100%.


6.1.11 The findings of the research are summarised below:

1. What are the potential new costs to the accommodation sector associated with the visitor levy in terms of collection and remittance? And what are the principal sources of such costs?

Costs estimates were suggested to be highly speculative and ultimately depended on the complexity of the visitor levy proposed by local authorities.

Seven main activities associated with a visitor levy were identified which accommodation providers would have to undertake before a visitor levy could be collected and remitted to a local authority ('set-up costs'). These are listed below:

a. Familiarising with what is required to comply with local authority guidance for a visitor levy.

b. Undertaking or commissioning necessary updates or changes to existing Property Management Systems (PMS) in order to collect, record and remit the visitor levy in accordance with local authority requirements.

c. Training existing staff on new systems or changes that have been made to existing systems.

d. Renegotiating existing contracts with third parties (such as online travel agents) where a commission is based on accommodation sales.

e. Altering pricing schedules or dynamic pricing models to account for the visitor levy and deciding whether the business will pass on the cost of the visitor levy to guests.

f. Testing or piloting any new systems.

g. Hiring new staff or redeploying existing staff time to implement new systems or change existing systems.

There were differing time allocations for the total staff time required to complete the identified set-up activities listed above, with three accommodation providers stating they were unable to estimate the time associated. Out of the six remaining, time estimations between two to five days were indicated by two accommodation providers and 10 to 14 days by another two providers. However, time estimations as high as 30 days to several months were also indicated.

All surveyed accommodation providers indicated they would be engaged in the following on-going administrative activities.

a. Preparing regular remittance tax returns to the local authority.

b. Performing reconciliation exercises associated with tax returns and due diligence checks.

c. Engaging in additional record keeping for the purposes of evidencing where a local exemption to the visitor levy was applied so this can be evidenced to the local authority if questioned.

d. Explaining to customers why a visitor levy has been added to their accommodation bill.

e. Similar to the set-up time estimation, the common assessment of time burden for administrative activities were 3 to 5 days for micro businesses and 10 to 14 days for SMEs, with one large accommodation provider indicating 30 days.

We also asked these businesses to assess the time commitment associated with VAT as a proxy for the time that it may take to complete a visitor levy return. With respect to remittance of VAT, eight out of nine accommodation providers made regular VAT returns to HMRC, and often remittances were paid quarterly. Out of the eight businesses that paid VAT, the common amount of time to compile and quality assure before HMRC submission was four to eight hours (3), followed by less than an hour (2), with the remaining three each selecting, one to two hours, three to four hours and 16 hours. Excluding the outlier of 16 hours, the average time to complete a VAT return was found to be 3.5 hours per return.

All accommodation providers surveyed used an 'off shelf' PMS from third parties for services such as invoice generation, value-added tax (VAT) calculations and flexible and dynamic pricing strategies. The fee charge ranged from as low as £500 per year (for a small self-catering business) to £500,000 per year (for a large hotel with a turnover of over £10 million), with additional fees of about £2,000 charged for changes such as VAT changes. Most also indicated additional recurring charges for their accounting system supplier and PMS. It was indicated that PMS providers may need 6 to 12 months to develop and test a workable solution for the collection and remittance of a levy. For smaller businesses which do not use a PMS, tax returns are likely to be calculated manually, resulting in additional administrative costs.

2. What is the impact of the potential new costs to the accommodation sector?

Accommodation providers stated that the cost of a visitor levy would be reflected in accommodation prices and that this could potentially lead to reduced visitor spending and/or reduce the number of visitor nights spent in a given location. It was noted that there was a risk that self-caterers and small accommodation providers may choose to leave the market if the increased compliance burdens associated with a visitor levy were significant. Smaller businesses which operate with an annual turnover below the VAT registration threshold could incur higher additional burdens relative to larger operators in the form of additional time burdens rather than direct financial costs.

3. To what extent do these costs vary by both accommodation provider type and design of a visitor levy? What approach to the basis of the charge would be most appropriate and minimise costs of collection for accommodation providers? Should the decision on the basis of charge and the rate be determined nationally or locally?

Costs will vary per the type of accommodation provider and other design attributes such as exemptions.

Different basis of charge models for a visitor levy were tested with accommodation providers. For example, to minimise compliance costs, generally self-caterers, hostels/caravan, and campsite operators preferred a percentage of the accommodation charge because these businesses did not always know how many people stayed in their accommodation per night. Hoteliers indicated a per room per night charge would be most simple to administer.

It was suggested that the operation of exemptions would lead to additional complexity and therefore higher compliance costs for businesses. It was noted that some online bookings required little information on characteristics of the visitor to be inputted, so operating exemptions would require additional relevant information to the collected. Consideration of how this data may be protected in line with data protection legislation was also raised as a concern. It was suggested that a 'reclaim route' could be used to minimise these costs, where a visitor qualifying for an exemption would pay upfront and apply for a refund directly to the local authority.

It was suggested that a visitor levy should be introduced within a national framework that has defined parameters for consistency. For example, a consistent basis of charge across all local authorities that might introduce a visitor levy was viewed as important for providers operating in multiple locations across the country.

It was further mentioned by some accommodation providers that all authorities should be required to introduce a visitor levy to avoid competition between areas. This is however a significant departure from the proposed discretionary nature of the levy.

A complaints procedure for visitors about the visitor levy was also suggested so that frontline accommodation provider staff do not need to explain the visitor levy policy.

4. What approach to collecting a visitor levy would be most appropriate and minimise costs of collection for the accommodation provider?

The Visitor Levy Bill does not specify how a visitor levy is collected in practice by local authorities and it may be the case that accommodation providers will have flexibility with respect to these practical decisions. Two collection models were proposed in the research: a visitor payment collection model; and an accommodation provider payment model.

The visitor payment model was further divided into two: a visitor levy at point of sale or booking; or a visitor levy at point of arrival or departure. The point of sale or booking model meant collecting visitor levy payments before actual visits are made. This was seen as the most transparent as all upfront payments/charges are made known to avoid an 'unexpected' additional tax/levy at the point of departure which could cause ill-feeling. However, the downside is the processing of refunds for cancelled bookings leading to potential additional complexities and costs.

The point of arrival or departure meant visitors make payment when arriving or departing the accommodation facility. This was seen as compatible with price display regulations and to help communicate that the visitor levy is an additional charge levied by the local authority and not the accommodation provider. However, this was thought to be challenging, especially for some in the self-catering sector, where use of remote check-in was common.

The accommodation provider payment model meant periodic visitor levy payments are made based on actual occupancy or turnover from room sales and remitted to local authorities directly.

5. How will local authorities use revenues from a visitor levy to support local tourism? What items of local authority spending should be supported by the revenues generated by a visitor levy?

It was proposed that visitor levy revenues should be hypothecated or ring-fenced for tourism related services such as: advertising and promotion of local areas and attraction; upkeep of amenities from pressure caused by visitors such as waste collection; maintenance of footpaths, public space and visitor information centres; and supporting training/apprenticeships of young people in hospitality.

It was also highlighted that there were likely to be different priorities for revenues depending on the characteristics of the local authorities involved, particularly in terms of the degree of rurality, and especially in the case of island communities. Further information on our assessment of the Bill on islands can be found in the Island Communities Impact Assessment.

Number of accommodation providers affected by the introduction of a visitor levy

6.1.12 Annex D summarises in detail the available data covering the types of businesses which could be impacted by the introduction of a visitor levy, with a selection of relevant information referenced here in the Scottish firms' impact test.

6.1.13 The latest available data show that the accommodation sector in Scotland comprised 2,925 registered enterprises in 2022, employing 44,000 people in 2021128. Registered enterprises are businesses that are registered for VAT and/or PAYE. The data therefore does not capture the very smallest of businesses whose turnover falls under the VAT threshold (£85,000) and who are not PAYE registered.

6.1.14 The majority of registered enterprises and employment in the accommodation sector is in hotels and similar accommodation (56% of enterprises and 84% of employment).

6.1.15 Small businesses (0-49 employees) account for the vast majority (93%) of registered businesses in the accommodation sector with medium businesses (50-249 employees) accounting for just 5% and large businesses (250+ employees) just 2%.

6.1.16 Half of accommodation enterprises are located in just five local authority areas, with a fifth of enterprises in the sector located in Highland (22.2%), 10.4% in Edinburgh, 8.7% in Argyll and Bute, 7.5% in Perth and Kinross, and 6.3% in Dumfries and Galloway.

6.1.17 As the visitor levy will be applied as a percentage charge of accommodation sales, total turnover is a reasonable indicator of the relative impact of a visitor levy on businesses in a particular area and would also be indicative of the potential revenues that could be generated from a levy in each local authority area.[32]

6.1.18 The accommodation sector was impacted severely by the Covid-19 pandemic. Total turnover in the sector was nearly 50% lower in 2020 (£1.4bn) compared to 2018 (£2.7bn). Business activity in the accommodation sector, in terms of turnover, was largest in Edinburgh, which represented 20% of total turnover in the accommodation sector prior to the Covid pandemic in 2019 (16% in 2020), followed by Glasgow at 11% (8% in 2020), Highland at 10% (12% in 2020), Perth and Kinross at 8% (8% in 2020) and Fife at 6% (5% in 2020). We would expect these broad regional trends in size of the accommodation sector to persist as the sector recovers from the pandemic.

6.1.19 There are a significant number of unregistered businesses in the accommodation sector, particularly in the short-term let accommodation sector. Businesses with a turnover of less than £85,000 do not have to register for VAT and may not use PAYE either, for example where a business is run by a self-employed person. Therefore, these businesses will not appear in the official statistics on registered businesses in the accommodation sector. Small self-catering businesses are likely to fall into this category.

6.1.20 Alternative data sources can be used to indicate the number of unregistered businesses in the sector. As at January 2023, there were around 18,280 self-catering premises on the non-domestic rates valuation roll and figures from 2021 indicate there were also around 1,490 of premises that were registered for council tax (rather than non-domestic rates) and operating as a small accommodation provider. Local authority breakdowns of this data are available in Annex D. Other evidence suggests that the short-term let sector could be even larger across Scotland, with as many as 32,000 short-term lets in 2019.[33] As the visitor levy will be implemented after the requirement for short-term lets in Scotland to hold a licence issued by a local authority, local authorities will have access to more complete data as to the size of this sector in their own areas when a visitor levy is introduced.

6.1.21 It should be noted that the figures referenced in 6.1.19 generally refer to the number of premises operating in the sector (i.e., individual properties registered for non-domestic rates or properties recorded as available to let on online collaborative sharing platforms). This means they are not directly comparable with business statistics from the Inter-Departmental Business Register (as in Table D1 in Annex D), as these count the number of registered business enterprises in the accommodation sector. A single enterprise may operate from more than one premise on the valuation roll or let out multiple properties on a collaborative sharing platform.

Competitiveness of Scottish accommodation providers within the UK and elsewhere in Europe

6.1.22 The impact of a visitor levy on accommodation providers' competitiveness and profitability depends firstly on whether businesses are able to pass on the cost to visitors, and secondly on the behavioural response of visitors to a change in accommodation price. It also depends on the extent to which revenues generated from a visitor levy are successfully deployed to improve other factors that influence overall competitiveness of Scotland as a tourism destination. These factors are assessed and discussed further in Annex C.

6.1.23 In terms of international price competitiveness, evidence from the World Economic Forum's (WEF) Travel & Tourism Competitiveness Index (TTCI)[34] suggests that pre-pandemic, the UK scored relatively poorly, ranking last in terms of its price competitiveness. This was influenced by the relative high cost of plane ticket taxes and airport charges, fuel, and the cost of living (measured by purchasing power parity).[35] The price competitiveness pillar also includes a measure of hotel prices, where the UK was ranked 72nd out of 140 countries in 2019.[36] Since then, the pandemic had a substantial impact on the sector affecting many areas measured within the index. In 2021, the set of measures in the index was revised to focus on the sustainable development of the sector across a smaller coverage of 117 countries and was renamed the Travel & Tourism Development Index (TTDI). The price competitiveness score for the UK in the updated index remained low, ranking second to last out of 117 countries. UK hotel prices were just below the average, ranking 64th. The revised index included a new measure of short-term rental prices, for which the UK had relatively high prices, ranking 106th.[37]

6.1.24 However, there are many other non-price factors that impact competitiveness. Based on the extensive research in this field, WEF's Travel & Tourism Development Index (TTDI) suggests other components that impact the competitiveness of a tourism destination include a country's: business environment and productivity; safety and security; labour market; health and hygiene; digital and transport infrastructure; government support; governance structure; tourist services; natural and cultural resources and international openness. In terms of the overall competitiveness of its tourism sector based on the above factors, the UK is highly ranked in 2021 (8th out of 117 countries). In 2019, the UK ranked 6th out of 140 economies, behind only Spain, France, Germany, Japan, and USA.

6.1.25 Research from the European Commission,[38] World Tourism Organisation,[39] and the OECD[40] also found that, while price is an important factor in influencing tourism demand, it is not the only determining factor. These studies highlight many of the same determinants that influence the perceived quality of a country's tourism product considered by the World Economic Forum's TTDI, such as infrastructure, natural and cultural resources, social development and sustainability.

6.1.26 It is important to note that tax plays a role in influencing some of the non-price factors that impact tourism competitiveness as it generates revenue to invest in public goods such as infrastructure, cultural and natural resources, safety and security and labour market improvement policies.

6.1.27 Research conducted by VisitScotland in 2017 suggested that for visitors to Scotland, the price of hotels/accommodation was not an important factor in their motivation to visit Scotland, with only 6% of visitors indicating that this factor persuaded them to visit Scotland. Visitors were primarily drawn in by its natural and cultural resources, with other main motivations cited including: escapism; visiting friends / family; proximity; friendly people; and range of activities available. Location and value were found to be key factors in accommodation choice, but availability of free WiFi was also important, whilst value for money was more important for younger and international visitors.[41] Other research has suggested that the three most important factors for choosing a destination for EU citizens are cultural offerings, price, and the natural environment of a destination.[42]

6.1.28 According to Scottish Tourism Alliance members, improving infrastructure and transport, avoiding further tax on businesses and tourists, and improving the quality of the visitor experience were the top three things that businesses listed that Scotland needs to do to be a more globally competitive tourist destination, with many also indicating improved digital infrastructure and consumer value for money as key.[43]

6.1.29 Beyond pricing, factors that tourism businesses can strategically put in place to improve competitiveness include: technologies and innovation; business performance/efficiency; sustainability practices; marketing; using well-trained staff; and building strategic alliances with complementary firms. These all help to improve service quality and customer satisfaction, and encourage brand loyalty, all of which impact competitiveness in this sector.[44] External factors can also impact competitiveness such as: the happiness and quality of life of local residents; the spending power of tourists; and supporting industries such as transportation and travel firms.[45]

Impacts on other firms (excluding accommodation providers)

6.1.30 Outwith accommodation providers, the Scottish Government's wider sustainable tourism growth sector includes pubs, bars, restaurants, other tourist attractions and tour operators within its definition. Within these, there are 13,025 registered businesses operating from 15,305 sites in Scotland, with estimated employment of 166,000 people.

6.1.31 Of the 12,750 businesses operating with less than 50 employees, 1,640 (12.9%) were in Edinburgh and 1,855 (14.6%) were in Glasgow.

Table 6: Number of businesses, employment, turnover and GVA in Sustainable Tourism sector (excluding accommodation)
Registered Businesses Small Registered Businesses (<49 employees) Medium-sized registered businesses (50-249 employees) Large Registered Businesses (250+ employees) Employment (BRES 2021) Total Turnover (in £m) (SABS 2020) GVA (in £m) (SABS 2020)
SIC 56.1: Restaurants and mobile food service activities 8,590 8,445 80 60 104,000 2,224.1 1,201.3
SIC 56.3: Beverage serving activities 2,580 2,540 30 15 29,000 763.2 425.7
SIC 79.12: Tour operator activities 200 190 10 0 700 60.8 18.0
SIC 79.9: Other reservation service and related activities 120 120 0 0 1,500 27.3 7.0
SIC 91.02: Museum activities 100 100 5 0 4,500 21.3 -7.2
SIC 91.03: Operation of historical sites and buildings and similar visitor attractions 60 55 0 5 3,000 36.7 -8.5
SIC 91.04: Botanical and zoological gardens and nature reserve activities 40 30 10 0 2,250 30.4 3.9
SIC 93.11: Operation of sports facilities 455 420 25 15 12,000 226.6 103.0
SIC 93.199: Other sports activities (not including activities of racehorse owners) nec 445 435 5 5 4,000 101.4 43.9
SIC 93.21 Activities of amusement/theme parks 20 15 5 0 700 20.3 10.9
SIC 93.29: Other amusement and recreation activities 410 400 5 5 4,000 128.4 66.5

Sources: ONS, Inter-Departmental Business Register (March 2022), Business Register Employment Survey 2021, Scottish Annual Business Statistics 2020

6.1.32 Businesses in the accommodation sector supply chain will also potentially be affected if a local authority introduces a visitor levy, including retailers and wholesalers of food and drink, service providers to accommodation premises (e.g., laundry services, cleaning services) and other related suppliers in the wider supply chain including outside catering.

6.1.33 In addition to businesses in the supply chain, Scottish businesses may incur increased costs if they choose to meet travel and subsistence costs for staff who may be required to travel and stay overnight in other areas of Scotland where a visitor levy is implemented. Statistics from the Great Britain Tourism Survey (GBTS) indicate that in 2019, across Scotland as a whole, around 1.6 million (12%) of the total 13.8 million domestic visitor nights estimated to take place are accounted for by people staying overnight for business purposes.[46] For international visitors staying overnight in Scotland, it is estimated that 371,000 (11%) of the total 3.4 million were for business purposes.[47] There are also strong regional variations across Scotland. In 2019, travel for a business-related reason made up a higher share of international visits in Grampian (29% of international visits, 16% of domestic) than in Edinburgh and Lothians (9% of international visits, 15% of domestic). Greater Glasgow & Clyde saw the highest share of business travel for domestic visitors (21% of domestic visits, compared to 15% of international visits).[48]

Impacts on Small Businesses

6.1.34 Smaller businesses including hotels, B&Bs, guest houses, hostels, commercial campsites and caravan sites, restaurants or pubs with rooms and self-catering accommodation including any properties let via collaborative sharing platforms may be affected disproportionately by additional compliance costs, in particular for those operating below the VAT registration threshold. These businesses are likely to have limited resources (in terms of time and financial resources) to ensure compliance with a visitor levy, particularly if there is complexity around exemptions in any local scheme.

6.1.35 Accommodation providers are largely micro or small businesses, with relatively small numbers of employees. Table 7 sets out registered business units within the accommodation sector in bands by employee size, and Table 8 shows the breakdown by local authority areas. These are business units that are registered to pay either VAT and/or PAYE. Within the accommodation sector, 93% of registered enterprises are small businesses with less than 50 employees. 53% of registered businesses have 0 – 4 employees and 15% have 5 – 9 employees. Argyll and Bute, North Ayrshire, Perth and Kinross, Highland, Scottish Borders and Angus all have above average (69%) shares of registered accommodation businesses with less than 10 employees.

Table 7: Number of Registered Businesses, by Employee Sizeband and Accommodation type [49]
0-4 employees 5-9 employees 10-14 employees 15-49 employees 50+ employees Total
Hotels and similar accommodation 545 300 165 450 180 1,645
Holiday centres and villages 90 25 5 10 5 135
Youth Hostels 20 5 0 0 0 25
Other holiday and short-stay accommodation (not including holiday centres and villages or youth hostels) 620 75 15 20 10 40
Camping grounds, recreational vehicle parks and trailer parks 215 5 15 10 10 295
Other Accommodation 65 5 5 5 5 85
Total accommodation 1,560 450 210 495 210 2,925

Source: ONS, Inter-Departmental Business Register (March 2022)

Table 8: Number of Registered Accommodation Businesses, by Employee Sizeband and by local authority
Local Authority 0-4 employees 5-9 employees 10-14 employees 15-49 employees 50+ employees Total
Aberdeen City 25 5 5 15 30 80
Aberdeenshire 85 20 15 40 15 170
Angus 30 15 5 10 5 65
Argyll and Bute 140 45 15 35 20 255
City of Edinburgh 170 35 10 35 50 305
Clackmannanshire 5 0 0 0 0 10
Dumfries and Galloway 85 35 25 30 10 185
Dundee City 5 0 0 5 10 30
East Ayrshire 10 0 0 5 5 20
East Dunbartonshire 5 0 0 0 0 10
East Lothian 25 5 5 10 10 50
East Renfrewshire 0 0 0 5 5 5
Falkirk 15 0 5 10 5 35
Fife 80 15 10 20 20 150
Glasgow City 55 25 10 35 35 155
Highland 355 100 45 100 50 650
Inverclyde 0 5 0 5 5 10
Midlothian 10 5 0 5 0 25
Moray 40 15 5 20 5 85
Na h-Eileanan Siar 30 5 5 10 0 55
North Ayrshire 40 10 5 10 10 70
North Lanarkshire 10 0 0 5 10 30
Orkney Islands 10 10 0 10 0 30
Perth and Kinross 115 40 15 35 25 220
Renfrewshire 10 5 0 5 10 30
Scottish Borders 65 15 10 15 10 115
Shetland Islands 10 5 0 5 0 25
South Ayrshire 30 10 5 10 20 75
South Lanarkshire 20 5 5 5 15 40
Stirling 65 15 15 15 15 125
West Dunbartonshire 10 0 0 5 5 20
West Lothian 15 5 0 5 5 30
Scotland 1,560 450 210 495 210 2,925

Source: ONS, Inter-Departmental Business Register (March 2022)

Note: Each business is counted once in each area it operates in. The sum of the area business counts does not equal the overall Scotland total because each business is only counted once in the Scotland figures.

6.1.36 Other statistics in Annex D show the distribution of business premises registered for non-domestic rates in the accommodation sector and premises registered for council tax in the accommodation sector that received covid business support. Given the variation in numbers (particularly with self-catering premises[50]), it is clear that there are a large number of small accommodation providers that are not registered for VAT. Local authorities will hold more complete data on small businesses through information that is being collected through the short-term let licensing regulations. This will allow local authorities to accurately access the number of businesses required to submit a tax return in future, regardless of size.

6.1.37 Recognising this, the Bill will allow an accommodation provider to choose to enter into an arrangement with a third party to allow them to collect the levy, remit it to the local authority, and complete any relevant returns to a local authority on their behalf. The policy intention is that an accommodation provider can choose to make arrangements for a third party to handle these aspects, as is common practice in many jurisdictions where a visitor levy is paid.[51] It would remain the case, in these circumstances, that the fulfilment of the requirements and duties in relation to a visitor levy remains the responsibility of the accommodation provider. This allows a local authority, if it is necessary, to take enforcement action against the accommodation provider rather than any third party. Other mitigations for accommodation providers not using platforms that collect and remit the visitor levy on their behalf may be made by the local authority, including for instance, requiring less frequent tax returns (one per year rather than four for example).

6.1.38 In other contexts, as previously highlighted, depending on the treatment of the visitor levy for VAT, some small businesses may need to take action to reduce turnover from sales of accommodation to remain under the VAT registration threshold. This is discussed in the competition assessment below.

6.2 Competition assessment

6.2.1 It is envisaged that a visitor levy would apply to all accommodation providers within a local authority area that introduces the levy, including short-term let visitor accommodation. However, particularly under Option 3, there may be discretion for local authorities to introduce higher or lower levies in certain areas of a local authority, or to exclude certain types of accommodation. This would potentially have an impact on competition between accommodation providers.

6.2.2 The following sets out the Scottish Government's view on the impact of a visitor levy, using the standard questions within the competition assessment.

  • Will the measure directly or indirectly limit the number or range of suppliers?

6.2.3 There is potential that some smaller accommodation providers (particularly in the self-catering sector and providers offering accommodation through collaborative sharing platforms) could exit the sector if administration and compliance costs associated with the levy are perceived as significant.

6.2.4 It should be recognised that some businesses that operate on a turnover below the VAT registration threshold (£85,000) may be particularly exposed as, depending the position the UK Government take on a visitor levy and VAT, these businesses may also need to comply with the VAT regime as well as the visitor levy. There is a high degree of uncertainty associated with estimating the number of accommodation businesses that are unregistered for VAT. The Businesses in Scotland 2022 publication estimates that on average there were around 5,000 unregistered businesses in the accommodation and food service activities sector.[52]

6.2.5 In developing this BRIA, we estimate that approximately 40%-60% of these unregistered businesses will be accommodation providers, meaning that there are potentially around 2,000-3,000 accommodation businesses unregistered for VAT currently across Scotland (with 2,925 being VAT registered). There are likely to be further unregistered providers of accommodation which operate more informally, where income generated from the sale of accommodation is not the main source of income for someone who is self-employed. (Unregistered business statistics would not, for example, include persons that have an income from a short-term let property if this income is not the main source of income for the individual.) As the licensing regime for short-term lets is rolled out across Scotland local authorities will have a clearer understanding of the number of commercial accommodation operators in their areas of all sizes.

6.2.6 Of the potential 2,000-3,000 unregistered accommodation businesses, it is recognised that a proportion of these may be operating close to or at the £85,000 threshold. The addition of a visitor levy to the accommodation sales price may mean some businesses will either need to register for VAT or take some action to reduce their turnover to remain below the £85,000 threshold. Registering for VAT would incur an increased tax liability and lead to some additional compliance costs for such business, whilst reducing their turnover would have a limiting effect on the supply of accommodation. To illustrate the potential impact on an accommodation provider in these specific circumstances we have developed the following worked example.

6.2.7 For instance, a small self-catering business letting two properties at a rate of £125 per night for 340 nights per year would have a turnover of £85,000, the maximum turnover for any businesses unregistered for VAT. If the local authority these properties are located in proceeds to introduce a 2% visitor levy, this would increase the price of accommodation paid by visitors in this case to £127.50 per night. Assuming the accommodation is booked for the same number of nights after the introduction of the visitor levy (340 nights), the total turnover of the business is £86,700, with £1,700 remitted to the local authority as a visitor levy payment.

6.2.8 However, at this level of turnover the business would exceed the VAT turnover threshold if the visitor levy is treated as VATable. This means the business would either have to (a) register for VAT and increase the sale price of accommodation by 20% or (b) reduce the base sale price or take action to reduce the number of nights the properties are let out for over the course of a year, in order to reduce turnover (inclusive of the visitor levy) to £85,000.

6.2.9 In this example, the accommodation provider under option (a) would have to increase the sale price to visitors from £125 per night to £153.15 (a 22.4% increase), reflecting both the visitor levy and VAT due. Assuming that 340 nights were booked at this higher price, the turnover of the business would be £104,040, with £1,700 being remitted as visitor levy income to the local authority and £17,340 being remitted as VAT income to HMRC (although under the flat rate VAT scheme - see 6.2.13 - the business would only remit £9,104). The business would also have to incur non-trivial compliance costs associated with complying with VAT and the visitor levy. From engagement with stakeholders the average time cost for a business to comply with VAT was found to be around 13.5 hours (assuming 4 returns are made per year), although it is likely that this will vary across businesses in the sector.

6.2.10 Under option (b) the accommodation provider would need to reduce the number of nights the accommodation was booked from 340 to 333. On this basis, the business could still achieve a turnover of £85,000, with around £1,667 of this turnover being remitted to the local authority as visitor levy income. The business would not have to register for VAT and would not incur any additional compliance costs.

6.2.11 A 2017 HMRC/Ipsos Mori study examined behaviours and experiences in relation to VAT registration for small businesses. Around two-thirds (63%) of unregistered small borderline businesses surveyed never expected their business to reach the VAT threshold, and around one in five businesses said they had taken some action to remain under the threshold and outside the VAT system. Academic studies suggest that there is evidence of small businesses changing their behaviour to remain below the VAT registration threshold legitimately - by restricting the scale of its operations – or illegally – by misreporting sales.[53]

6.2.12 Of the estimated 2,000 - 3,000 accommodation businesses unregistered for VAT, it is not possible to accurately estimate the number of businesses that may change their behaviour in response to the introduction to a visitor levy for the following reasons. However only those that operate at or near the £85,000 threshold are likely to be impacted by the interaction with VAT and risk additional compliance costs, potentially a small minority of the 2,000 - 3,000 businesses identified. Secondly, as discussed throughout this BRIA, we do not know which local authorities in Scotland will introduce a visitor levy and so there is uncertainty about how many accommodation providers would be impacted in practice. Finally, the number of accommodation providers affected by this interaction will also in part depend on the rate of visitor levy adopted by local authorities, with higher rates affecting more businesses than lower rates.

6.2.13 Lastly there exists a simplified VAT scheme (the VAT flat rate scheme), for which accommodation providers in these specific circumstances may be eligible. Under the flat-rate scheme although an accommodation provider must still charge an additional 20% on the sale price to consumers, they only remit to HMRC an amount based on a lower rate which varies depending on the sector (10.5% for hotels or accommodation). A business may be eligible for the scheme if their turnover is less than £150,000, which we assume almost all unregistered accommodation businesses will fall into after accounting for any impacts of a visitor levy. According to estimates shared by HMRC, there were around 200 accommodation providers in Scotland registered with the simplified flat rate scheme currently.

  • Will the measure limit the ability of suppliers to compete?

6.2.14 A visitor levy may theoretically impact on competitiveness where the volume and type of overnight accommodation in an area where a visitor levy is being applied is very similar to that within a local authority that has not introduced a visitor levy. However, as set out in Annex C, if the extra cost is a small percentage of the overall cost of the trip, then such impacts may be negligible in practice.

6.2.15 For example, tour bus operators may choose to use hotels in areas without a visitor levy and travel from there to destinations within a local authority that applies a visitor levy. Whilst we are not aware of any evidence of this in practice with overnight accommodation taxes, there is some evidence of this behaviour occurring in taxation of cruise ship passengers (see Annex B). The extent to which individual visitors, when planning a trip, choose to substitute accommodation in an area applying a visitor levy with accommodation in an area that does not apply a visitor levy is perhaps more limited, as any differential in price would be offset against additional costs of travelling from the area without a visitor levy to one with a visitor levy.

  • Will the measure limit suppliers' incentives to compete vigorously?

6.2.16 It is not anticipated that a visitor levy will limit incentives for competition between accommodation providers.

  • Will the measure limit the choices and information available to consumers?

6.2.17 Provided the advertised price of accommodation in local authorities operating a visitor levy makes clear the requirement to pay a visitor levy, and its value, there will be no material impact on information available to consumers. We have heard from stakeholder feedback that due to the complexity of routes to market in the industry (such as the use of online travel agents and other third parties), there may be complications in ensuring that prices inclusive of a visitor levy are shown across all platforms. To mitigate against this risk, the bill sets out an 18-month period in which accommodation providers can ensure that they are fully ready to comply with the requirements of a visitor levy scheme, including that advertised prices accurately reflect the impact of the visitor levy. There is a potential impact on consumers looking to stay within local authorities that have a visitor levy if some providers choose to exit the sector, or reduce the number of nights made available for booking, due to additional compliance costs or interactions with VAT.

6.3 Consumer assessment

6.3.1 The following sets out the Scottish Government's assessment of the impact of a visitor levy using the standard questions within the consumer assessment:

  • Does the policy affect the quality, availability or price of any goods or services in a market?

6.3.2 A visitor levy could increase the price of commercial accommodation within local authorities choosing to introduce a visitor levy, assuming that at least part of the cost of the visitor levy is passed onto visitors (see Annex C for more detail on pass-through). As stated in the competition assessment, availability of accommodation may be reduced at the margins if some accommodation providers withdraw from the market, or reduce the number of nights made available for booking.

6.3.3 It should be noted that revenues raised from a visitor levy in areas that apply the levy will be used to develop, support and sustain facilities and services substantially used by visitors , which may increase the attractiveness of a location.

  • Does the policy affect the essential services market, such as energy or water?

6.3.4 There is no expected impact on markets for essential services as a result of the introduction of a visitor levy.

  • Does the policy involve storage or increased use of consumer data?

6.3.5 Accommodation providers are likely to be required to collect and store data on consumers (visitors) in order to comply with any record keeping requirements imposed by local authorities introducing a levy. These records may or may not be additional to current practice. There is more likely to be additional information required if particular local exemptions to the visitor levy are applied, which require additional data on visitors to be collected and stored. There are no provisions in the Bill which set out specific exemptions and therefore consideration of additional data required to administer a particular exemption will be considered during the development of guidance. Any changes in data collection would have to comply with relevant data protection legislation. More information is set out in the Data Protection Impact Assessment.

  • Does the policy increase opportunities for unscrupulous suppliers to target consumers?

6.3.6 This is unlikely to occur as a consequence of the introduction of a visitor levy.

  • Does the policy impact the information available to consumers on either goods or services, or their rights in relation to these?

6.3.7 It is the intention that the advertised price of commercial accommodation in areas where a visitor levy is applied will clearly show any visitor levy, therefore there should be no impact on information available to consumers. There may be occasions where information held by third party booking platforms on the rates of local taxes applicable may not align with current local authority rates. This may lead to some confusion for visitors if visitor levy rates were to change frequently and platforms are not kept up to date. Under a percentage basis of charge, it is less likely that rates will change (for example to keep pace of inflation) compared to other models considered in the public consultation.

  • Does the policy affect routes for consumers to seek advice or raise complaints on consumer issues?

6.3.8 There is no expected impact on routes for consumers to seek advice or raise complaints as a result of the introduction of a visitor levy.

6.4 Test-run of business forms

6.4.1 As referred to above, and evidenced through discussions with accommodation providers, there are likely to be new compliance costs on businesses in local authority areas that chose to implement a visitor levy. However, as this is a local levy which will be designed by local authorities, the test run of business forms and collection and remittance processes would be a matter for the relevant local authority, as part of the wider process of engagement with accommodation providers prior to the introduction of a levy.

6.5 Digital impact test

6.5.1 All operational decisions with respect to the administration of a visitor levy will be made by the local authority introducing a levy. We would expect local authorities will make arrangements so that accommodation providers have a choice to make regular tax returns through a digital platform or though more traditional methods, as is the case with the administration of other local taxes such as Non-Domestic Rates. The potential for privacy impacts and GDPR implications associated with the content of the Bill are assessed in the Data Protection Impact Assessment.

6.6 Legal impact test

6.6.1 There may be some limited impact on legal aid as local authorities are granted new powers to impose civil penalties on accommodation providers.

6.6.2 The policy intention is that an accommodation provider should be able to challenge the decisions of a local authority in relation to the decisions it makes in connection with the operation of a visitor levy scheme. This includes in relation to enforcement action and the application of penalties.

6.6.3 The first part of the process is that an accommodation provider can seek an internal review by a local authority of a decision it has made in relation to an accommodation provider and the levy. After this stage of an internal review the policy intention is that an accommodation provider can then appeal to the Frist-tier Tribunal for Scotland. Such appeals would again be against a decision made by a local authority in connection with the operation of a visitor levy scheme; in relation to enforcement action; or the penalties imposed by a local authority in relation to the scheme.

6.6.4 The details of the procedures to be followed, any time limits to be put in place, and the circumstances in which such reviews or appeals may be conducted, are matters to be set out in Regulations.

6.6.5 Such review and appeal mechanisms already exist in relation to local taxes such as council tax and non-domestic rates. It is appropriate that they are put in place in relation to the levy, allowing accommodation providers and local authorities a proportionate and local first stage to address any challenges. The right of appeal to the First-tier Tribunal of Scotland provides an external and judicial oversight of the actions of a local authority in any particular case.

6.7 Enforcement, sanctions and monitoring

6.7.1 The policy intention is that a local authority has the tools it needs to effectively enforce a visitor levy scheme. There is therefore a robust investigation and enforcement regime set out in the Bill. Having effective tools available to a local authority is a critical piece of putting in place a framework within which a local authority can operate a visitor levy scheme, if it chooses to introduce one.

6.7.2 One aspect is for a local authority to have the tools to request and obtain the information necessary to assess the visitor levy liability of an accommodation provider. The Bill therefore enables a local authority to require a liable person, or a relevant third party, to provide information or produce a document that is relevant to their liability to pay the visitor levy. This includes the power to issue an information notice and rules around complying with such an information notice. Certain types of information are exempt, such as journalistic material, information relating to a pending appeal, and privileged communications between legal advisers and their clients.

6.7.3 In some circumstances it may be necessary for a local authority to physically inspect a premises to assess potential liability for a visitor levy, or to inspect business documents that are on the premises. The Bill therefore includes a power for a local authority to do this, with suitable provisions around serving a notice, the powers a local authority officer or a person authorised by an officer has, and other matters related to use of the inspection powers.

6.7.4 The Bill puts in place a number of powers that a local authority can use, if necessary, to enforce a visitor levy scheme. These cover making returns; keeping appropriate records; dealing with failure to comply or obstruction; penalties for inaccurate information or documents; and failure to comply with time limits. The Bill also set out the penalties which can be applied, and the process to be used in enforcing such penalties. More details on each element of the enforcement regime are set out in the Policy Memorandum.

6.8 Implementation and delivery plan

6.8.1 The proposals will be implemented through primary legislation in the Visitor Levy (Scotland) Bill laid before parliament on 24th of May 2023, if the Bill is passed. Following this, local authorities are expected to undertake assessments and conduct appropriate local consultation before a visitor levy can be implemented. Therefore we do not expect a visitor levy will be implemented anywhere in Scotland before early 2026.

6.9 Post-implementation Review

6.9.1 A post implementation review is the responsibility of those local authorities who introduce a visitor levy. The Bill requires local authorities that choose to implement a visitor levy to regularly review the operation of the levy.



Back to top