Forces throughout the country were trying to claim back tax on vehicles they bought between 1993 and 1995.
The argument hinges on purchases made before the law was changed in August 1995, to allow any company using vehicles for 100 per cent business use to reclaim VAT.
Greater Manchester Police Authority led the claim to claw back £500,000 in tax taken on its own fleet, which could have been invested in extra resources for the force. In May last year Customs & Excise refused a bid to recover VAT on the purchases already made before 1995, and when the case went to the High Court in May last year, the force failed again to win the case.
In February this year, the case went to the Court of Appeal and once again, Customs & Excise won the argument. The request to the House of Lords for leave to appeal was a last chance bid to overturn the decision.
The 1995 VAT ruling only applied to marked police cars, leaving thousands of unmarked vehicles subject to tax if there was any private use. Police forces will now focus their battle on unmarked police cars to redefine 'private use'.
If the bid is successful, it could force Customs & Excise to pay back millions of pounds in VAT received on the purchase of thousands of unmarked police vehicles, but also many vehicles used by local authorities that are not VAT exempt.