The rules were relaxed for leasing companies and fleets which run cars for 100% business use from August 1, 1995. Royscot Leasing, Royscot Industrial Leasing, Allied Domecq and TC Harrison have so far lost every round of their fight to recover VAT on cars they bought for business, from tribunal right through to the Court of Appeal.
But European law would seem to favour their right to recover at least a proportion of the VAT incurred, according to Richard Watson, partner of PricewaterhouseCoopers. 'Where there is business use of a car, it seems only reasonable for a business to recover a proportion of the VAT incurred on the purchase of that car,' he said. 'Customs argues that taxpayers are stuck with the rules we had when VAT was introduced in the UK, even though subsequent directives have said that businesses should be able to recover VAT in proportion to business use.'
If the four plaintiffs win their case at the ECJ, Customs will be deluged with claims from fleets and leasing companies looking to recover VAT on cars bought between 1973 and 1995. The Government has already introduced one contingency plan, when former paymaster general David Heathcoat-Amory introduced a damage limitation policy by imposing a three-year block on backdated VAT claims.