England’s Overnight Visitor Levy: VAT and Practical Lessons from Scotland, Wales and Europe

England’s proposed overnight visitor levy may look like a relatively modest additional charge, but its effect on accommodation providers could extend well beyond the headline rate. Experience in Edinburgh and the developing Welsh regime shows that businesses may need to address VAT, pricing, advance bookings, booking platforms, invoicing and systems changes well before a local levy begins.

That wider commercial context was explored by Tom Roach, our head of tourism and hospitality, in his presentation to the Cornwall Chamber of Commerce visitor levy summit. Drawing on regional hotel data, he highlighted the financial pressures already facing the sector, the importance of continued private investment and the need to consider carefully how any levy would affect businesses and the wider Cornish economy; this article builds on that analysis by examining the VAT and practical implementation issues.

England’s direction of travel

As announced in The Budget 2026, the Government has confirmed that mayors and leaders of Foundation Strategic Authorities will be given the power to introduce percentage-based levies on overnight accommodation. The policy is therefore more advanced than an initial consultation proposal, although further legislation, local consultation and implementation work will be required before any English scheme can begin.

The first English schemes are not expected before 2028. Timing will vary between areas, and some Strategic Authorities may decide not to introduce a levy. Where a levy is adopted, accommodation providers operating across different authority areas may have to manage different commencement dates, rates and local requirements.

What Scotland and Wales tell us

Edinburgh provides the clearest live example. Its scheme applies a 5% levy to the cost of overnight accommodation before VAT, capped at the first five consecutive nights. It applies to qualifying stays from 24 July 2026 booked on or after 1 October 2025, subject to transitional protection for certain earlier bookings.

The Edinburgh experience illustrates that implementation is not confined to adding a line to an invoice. Booking dates, cancellations, refunds, third-party bookings, returns, records and system configuration all have to be considered. Transitional rules are particularly important where stays are booked months in advance.

The Visitor Accommodation (Register and Levy) Etc. (Wales) Act 2025 gives principal councils in Wales a discretionary power to introduce a visitor levy and gives the Welsh Revenue Authority responsibility for its collection and management. Cardiff Council has introduced a levy for new bookings for stays from 1 April 2027. Other councils must complete the required local consultation and notice process before introducing a levy.

Although the Scottish and Welsh regimes differ in design, both demonstrate the need for clear rules on liability, pricing, records and the role of booking intermediaries. Those lessons should inform both the English legislation and businesses’ preparations.

The wider EU position

Visitor levies are already used in many EU destinations, but there is no single EU-wide model. Their design is determined nationally or locally and may vary by destination, type of accommodation, length of stay, season and the age or circumstances of the guest. Some are fixed amounts per person per night, while others are calculated by reference to the accommodation price.

The VAT analysis sits within the common framework of Council Directive 2006/112/EC (the EU VAT Directive). Article 73 broadly defines the taxable amount by reference to the consideration obtained for the supply, while Article 78 requires taxes, duties, levies and charges, other than VAT itself, to be included. A visitor levy for which the accommodation provider is liable, and which it passes on to the guest, will therefore generally be included in the taxable amount for the accommodation, even if shown separately.

The outcome may be different under Article 79(c), which excludes amounts received by a taxable person from a customer as repayment of expenditure incurred in the customer’s name and on the customer’s behalf, where those amounts are recorded in a suspense account. The legal liability, collection arrangements and accounting treatment are therefore critical; it is not enough simply to describe the amount as a pass-through charge. Member States also apply different VAT rates to accommodation, so the VAT cost of passing on a levy can vary even where the underlying principle is similar.

Why VAT matters

VAT is a reserved UK tax. UK legislation determines the legal treatment, HMRC administers the tax and publishes its interpretation, and the tribunals and courts ultimately determine the position where it is disputed. The Scottish Government, Welsh Government, Revenue Scotland, the Welsh Revenue Authority and local councils cannot independently determine or alter the VAT treatment.

HMRC does not appear to have published standalone guidance specifically addressing the Scottish or Welsh visitor levies. Scottish publications record the VAT analysis communicated by HMRC, while the Welsh Revenue Authority has published guidance explaining its understanding of how existing UK VAT law applies. That material is useful, but it should not be presented as devolved VAT policy or as legally determinative HMRC guidance.

In broad terms, VAT is charged on the full consideration for a taxable supply. Where an accommodation provider is itself liable for a visitor levy and increases the amount charged to the guest to recover that cost, the recovery is likely to form part of the consideration for the accommodation and follow the same VAT treatment. It does not fall outside VAT merely because it is separately described as a “visitor levy” or “tourist tax”.

Example: if a VAT-registered hotel charges £100 for a room and adds £5 to recover the levy, the guest pays £105 before VAT. On the approach reflected in the Scottish and Welsh material, VAT applies to the full £105 because the hotel is recovering its own levy liability as part of the accommodation price.

The same principle matters for the VAT registration threshold. A business that is not VAT registered will not charge VAT, but amounts recovered from guests as part of its taxable accommodation income may increase its taxable turnover and bring forward the point at which registration is required.

The precise VAT treatment of an English levy will depend on the legislation, the legal liability it creates, the contractual arrangements with guests and booking platforms, and the capacity in which the provider handles the money. If a provider genuinely collects a statutory charge as agent for an authority, the analysis may differ. Clear legislation and HMRC guidance will therefore be essential.

The practical impact for accommodation providers

For many providers, the operational consequences may be more significant than the amount payable by each visitor. Businesses will need to consider:

• how prices are displayed, including whether they are VAT-inclusive or VAT-exclusive;
• whether booking engines and property-management systems can calculate the levy correctly;
• the treatment of deposits, advance bookings, cancellations, refunds and no-shows;
• how bookings through online platforms, tour operators and agents are handled;
• invoice wording, accounting entries, returns and record-keeping;
• the effect on taxable turnover and the VAT registration threshold; and
• the management of different rules where a business operates in more than one authority area.

Commercial terms will also matter. If a provider intends to recover both the levy and any associated VAT cost from the guest, that approach should be reflected clearly in advertised prices, booking conditions and arrangements with intermediaries. Unclear drafting could leave the provider bearing part of the cost or create customer disputes.

What businesses should do now

Although the first English schemes are not expected immediately, accommodation providers should monitor developments in their Strategic Authority area and begin mapping where a levy would affect their business. Early work should identify the relevant booking channels, contractual terms, systems, invoice formats and reporting processes.

Businesses should also review how long in advance bookings are accepted. Edinburgh’s experience shows that the relationship between booking dates, stay dates and transitional rules can create a lengthy implementation period. Waiting until a levy’s commencement date is announced may be too late to deal effectively with advance bookings.

The central lesson from Scotland, Wales and EU destinations is that a visitor levy is not simply an additional amount on a guest’s bill. Its design can affect VAT, pricing, systems, customer communications and compliance. English policymakers will need to define clearly who is liable for the levy, how it should be collected and how it interacts with advance bookings and intermediaries. Businesses, in turn, should prepare before the detail is finalised.

How we can help

We will know more about the detailed requirements if the legislation is passed and a levy is adopted locally. As the rules become clearer, we can help accommodation providers understand the VAT implications and consider how to adapt their booking, payment and accounting processes to collect and account for the levy.

A key issue will be bookings made before the levy is introduced for stays taking place afterwards. We can help businesses consider how any transitional rules apply, whether their booking terms allow additional charges to be recovered and how to communicate any changes to guests and booking platforms.