Owners of self-catering accommodation in Edinburgh have raised concerns over the city’s new tourist tax, claiming that it puts increased pressure on small businesses.
Edinburgh became the first place in the UK to introduce a visitor levy city-wide when the new tax came into force last Friday 24 July.
The City of Edinburgh Council has welcomed the new levy, stating that funds raised will help alleviate the pressure tourists put on the city’s infrastructure by reinvesting them back into public services.
All paid accommodation in the Scottish capital will now charge a five per cent fee on top of the original booking cost, capped at five nights in a row. The tax will be collected by the accommodation provider, and it will then be paid to the local authority.
While the levy will provide a new pot of funds for the council, some small holiday lets that are tasked with charging and collecting the levy are concerned about how it will impact their businesses and the wider tourist industry in Edinburgh.
And with the Fringe just days away, opinions are divided among visitors, too. Earlier this week, Fringe performers told The Independent they welcomed the new tourism levy, to offset the impact of weekend breaks such as stag and hen dos. But Scottish Ballet – which pays over £200,000 annually to accommodate its artists in Edinburgh – recently revealed that it would be cancelling some of its shows in December. The company’s executive director, Steven Roth, said that the “economics of touring to Edinburgh are fast becoming unsustainable” with the tax.
A bureaucratic headache
Paul Phillips, who has been running a short-let self-catering accommodation in the centre of Edinburgh for the past six years, said that while he thinks the levy is a good idea, in principle, the city council did not engage with the sector to create a “proportionate and fair” scheme.
“I think the levy is a good idea because it’s good for visitors to put something back into the city,” he said. “Somewhere like Edinburgh, where there is a lot of tourists, they make demands on the city’s infrastructure, so I think the levy in principle is a very good thing to have.”
However, Mr Phillips added that collecting the tax puts pressure on small businesses. He said that it’s “a highly complicated scheme that’s got lots of exclusions.
“It’s very complicated to work out because it’s not just a simple percentage. You’ve got to subtract non-accommodation elements from the levy,” he added
“The five per cent doesn’t seem a lot, but many businesses are paying 20 per cent VAT, and we actually have to pay VAT on top of the levy as well.”
Accommodation providers have to exclude extra charges when working out the tax, as it should only be levied on the cost of the accommodation. This means that items like meals, drinks and transport all need to be subtracted when calculating the levy.
The value needs to be worked out before VAT is applied. Since the visitor levy is treated as part of taxable turnover, it is also subject to VAT.
All providers must be able to show clearly how the visitor levy has been calculated. The law requires them to keep all necessary records for at least five years.
“So the five per cent actually becomes six per cent,” Mr Phillips added. “So we have 26 per cent of our costs going out in taxation of VAT and levy. The council itself did no economic impact study to say, ‘well, if we raise the levy at this amount, will people stop coming to the city? What will it do to accommodation prices?’”
He said not enough was done by the council to work with businesses “to design a scheme that was easy for us to operate, and they should have done an economic kind of analysis of the impact of the levy.”
The Independent understands that the council conducted consultations with businesses in 2024, as well as the public, in the lead-up to the levy. It also invited key bodies to test the new levy payment platform, and it was tweaked after initial feedback.
Ralph Averburch, who owns self-catering accommodation in Edinburgh, and is the director and operator of the Edinburgh branch of Association of Scotland’s Self-Caterers (ASSC), agreed that the new levy scheme will make running the business more complicated.
“We are already paying 20 per cent VAT on top of all the other things that come with running a business in terms of staff costs and national insurance costs,” he said. “Suddenly they bring in a visitor levy that, in some cases, will slot small businesses into the back thresholds, which is a huge additional burden.”
“To add insult to injury, it’s also been concocted in such a way that it is an absolute nightmare to implement,” Mr Averburch added.
Angus Neilsen, who owns several self-catering units across Edinburgh, said it is “unfair” that accommodation is the one sector out of the entire tourism industry that has to collect the tax.
He added: “All the other businesses that also benefit don’t pay it. Restaurants, bars, visitor attractions, tour companies – all of these are all benefiting, but they are not being expected to work out any of the costs.”
The decision to make accommodation providers collect the levy was set out in the Visitor Levy (Scotland) Act passed in 2024.
The holiday let black market
The business owners also raised concerns over the increased competition the levy will create between licensed businesses and those which advertise without a licence, enabling them to dodge the visitor levy.
Mr Averburch said that black market accommodation is not being policed or controlled in any way. He added: “They’re now adding a visitor levy, which all of these, if they were legitimate licensed properties, should be paying. But of course, they’re not going to pay this.”
Unlicensed accommodation providers use platforms such as Facebook to advertise their rooms, but will not display a short-term let licence number.
Mr Neilsen said he would “almost be happy” if the levy money raised would be used to pay for the enforcement of the black market.
How the tax will be spent
The council released a list of areas where the levy will be spent, including support for festivals, upgrading public toilets, green spaces, and creating a city centre policing unit. The VisitScotland visitor levy guidance says the benefits to visitors can be either direct or indirect.
Mr Averburch believes that spending funds on policing or cleaning up streets and emptying bins would be a mistake as they are already “statutory responsibilities” for local authorities.
“That’s them utilising this pot of cash to cover what would have historically been paid for out of the other funding sources that are delivered to [the council] on an annual basis,” he said.
Ahead of the visitor levy being implemented, the council announced that some of the funds would be used to create almost 500 affordable homes to help with the city’s housing crisis. The accommodation owners we spoke to agreed that this is not what the levy should be spent on, as it should be reinvested into aspects of the city that tourists use.
“I think housing is a great idea. We need more houses in the city, but the levy is not there to fund housing,” Mr Phillips argued. He said he agreed that the council should spend the funds on making the city cleaner and supporting cultural events like festivals.
The council said more affordable homes will free up bed and breakfasts currently used for temporary accommodation by residents.
The chief executive of the ASSC, Fiona Campbell, said that it is “broadly known that the ASSC is fundamentally against a business levy”.
She added: “But having said that, Edinburgh’s made its decision, so now our concentration has to be on implementation, and that implementation being efficient and fair, which it’s not, progressively.
“What we want to now make sure is that Edinburgh is transparent about the way it’s being spent.”
Council Leader Jane Meagher said in a statement: “We’ve always said this is a city-wide fund and spending decisions need to be taken with the whole city in mind – and we’re very grateful to Edinburgh’s businesses and residents for their constructive feedback and support throughout the process. I’m very aware of how busy the city’s accommodation providers are at this time of year and we’re continuing to do everything we can to support them as the scheme comes into effect.
“This is a big opportunity for us all to work together and enhance Edinburgh’s position as one of the most popular visitor destinations in the world.”
Read more: First UK city-wide tourist tax begins – here’s how much it will cost
