Fleet News

EC challenge to 'pay and reclaim' system

COMPANY car drivers must make sure their company's name is printed on any fuel receipts when paying for fuel for business journeys to avoid falling foul of European legislation. The European Commission is challenging the 'pay and reclaim' system used by thousands of UK companies to reimburse drivers for business fuel expenditure.

The focus of the EC's attack is the right of UK companies to recover VAT on fuel paid for by employees using their own cash, cheque, credit card or fuel card but used for business journeys.

This right does not comply with European legislation which insists that companies can only deduct VAT on goods which are supplied directly to the employer, not employee, and where the invoice is made out to the employer. The 'pay and reclaim' system meets neither of these criteria because, although the fuel is used for business purposes, it is supplied to the employee and it is the employee who is invoiced for it.

Teresa Ahern, senior manager with PricewaterhouseCoopers VAT consultancy, advises that ensuring the name of the company was somewhere on the receipt avoids VAT problems.

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