Fleets and dealers are currently covered by the same VAT rules which prohibit any VAT recovery on new cars if they have any private use. But in a technical note published earlier this year, Customs & Excise said it would introduce a new VAT regime for 'stock in trade' or demonstrator cars bought by dealers. PWC believes this could come into force from December 1 and sees the concession as a chink in Customs' case which could lead to fleets enjoying similar rights.
The new system for dealers will allow them to recover 100% of VAT on demonstrators and only repay a smaller amount of VAT based on the percentage of private use. PWC forecasts that this could see dealers saving as much as 95% of the VAT payable on the purchase of a new vehicle. Richard Watson, head of PWC's automotive VAT group, said: 'If Customs & Excise can do it for dealers, why not for businesses with company car schemes?
'The proposed regime seems out of line with current European thinking. The European Directive on VAT law advocates that businesses buying new cars for employees should only pay VAT on private use in the same way that car dealers will soon be able to when buying new cars for demonstration purposes. Extending the same benefit to company car schemes would bring UK VAT law in line with that already adopted in, for example, Germany.'