Fleet News

Warning on EU tax move

FUEL cards could be a way of saving fleets from the little-known EU 6th VAT Directive, which will prevent firms that operate a pay-and-reclaim system for business fuel from recovering VAT.

It is not often that you can put an exact figure on how much one of the many EU Directives handed down from on high will cost your company.

But in the case of the European Union 6th VAT Directive, for fleet operators running a pay-and-reclaim system for business fuel, that figure will be exactly 17.5%. According to the EU 6th VAT Directive, companies will no longer be able to recover the VAT from fuel bought by the employee for work mileage. The European Commission claims that VAT is only recoverable when a transaction occurs between two VAT-registered companies.

The Treasury is contesting the case and is awaiting confirmation of dates for the hearing, but the only way a firm is able to ensure it can recover VAT on fuel – should the case be either won or lost – is by using a 'business to business' purchasing card: either a company credit card or fuel card.

Despite a number of warnings on Fleet NewsNet, Mike Waters, head of market analysis at Arval PHH, believes a number of firms are unaware of the impending legislation and how much it could cost them. He said: 'In publicity terms the 6th VAT Directive has received scant coverage to date. However, for many fleet operators it may well have a significant impact.

'In November 2001 the European Court of Justice (ECJ) handed down an important judgement against the Netherlands covering the extent to which an employer is entitled to recover VAT on costs or items paid for by employees – such as a driver buying petrol for business use himself or herself and then reclaiming the expense.'

He added: 'Sound familiar? Well, unless you are using some form of specialist business-to-business purchasing card, then you are following the same pay-and-reclaim process as many businesses in the Netherlands. The UK government intervened in this case on behalf of the Netherlands, on the basis that we follow similar VAT recovery procedures.

'So when the Netherlands lost ,the UK was tarred with the same non-compliance brush.'

Many industry experts believe the UK government is almost certain to lose the case, and that firms should be evaluating their position on pay-and-reclaim, and looking at the financial implications in more detail.

Waters continued: 'There are clear implications for UK fleet operators should our VAT laws be amended. Fuel is perhaps the clearest example. Employers could choose to accept the loss of VAT.

'However, for a 1,000-vehicle fleet where each car travels an average of 10,000 business miles per annum, the amount of unclaimed VAT each year could be in excess of £150,000, based on current fuel prices.

'The most likely way around this problem is a move to a specialist fuel purchasing cards that can provide access to an effective national – if required – network of suppliers and provide the benefits of additional control over expenditure. This will also ensure that VAT is recoverable.'

Until the case is heard, and UK domestic law amended, existing procedures of pay-and-reclaim are perfectly acceptable. Nevertheless, it might be wise for any fleet to review its existing pay-and-reclaim processes – a lot of money could be riding on it.

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