The EC is pressing ahead with a court hearing it hopes will enforce a Directive that would ban companies from reclaiming the VAT on fuel if an employee has paid for it and then reclaimed the cost.
The Advocate General has asked the European Court of Justice to declare the UK in violation of the 6th VAT Directive. This potentially leaves UK businesses unable to reclaim millions of pounds of VAT incurred from business mileage expenses.
The EC claims that VAT is only recoverable when a transaction takes place between two VAT-registered companies.
If UK domestic law is amended as a result of any court ruling then employers may only be able to reclaim VAT on fuel transactions via a purchasing system, such as fuel cards or company credit card, that allows for billing to be made in the name of the fleet. Experts have described the level of awareness of the dispute between the UK and the European Union over the 6th VAT Directive as ‘worryingly low’.
A company running a fleet of 100 vehicles, with drivers averaging about 5,000 miles per year, will reclaim up to £23,000 a year from HM Customs & Excise. This could be blocked if the EU Directive was enforced.
No date has yet been set for the court hearing and until any decision is made – and the UK law changed – fleets can still use existing procedures of pay-and-reclaim.
Any changes though would have a major impact on UK businesses.
Mike Waters, head of market analysis at leasing and fleet management company Arval, which operates the AllStar fuel card, said: ‘Companies will either have to overhaul their fuel procurement systems, by introducing a purchasing mechanism that allows for billing to be made in the name of the employer, or they will be unable to continue to reclaim the VAT on fuel.
‘If the decision goes against the UK, it could also potentially impact on other staff paid expenses, such as hotel accommodation, which is traditionally paid for by the employee and then reclaimed.’
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