Fleet News

Revenue moves in to avert VAT nightmare

OFFICIALS at HM Revenue & Customs have vowed to work with fleets to avoid swamping them in red tape during a major VAT overhaul – dashing hopes that the controversial changes will be scrapped.

There had been claims in the industry that fleets would be unaffected by a ruling which will impact on the pay-and-reclaim system of reimbursing employee mileage. Part of the European Sixth Directive states that VAT on fuel can only be reclaimed if the purchase is made by a VAT-registered company.

Therefore, if an individual purchases the fuel using a private card or cash, the employer cannot subsequently reclaim VAT.

Estimates have varied but a worst-case scenario put the cost to the fleet industry at £1.2 billion if they did not change the way staff paid for business fuel. The most likely course of action is to issue fuel cards to drivers.

The Government is currently considering its response to the European Court of Justice ruling that found the UK in breach of the European Sixth Directive. A recent meeting of the East Anglia region of the Association of Car Fleet Operators heard suggestions that they would be completely unaffected by the overhaul.

But officials at HM Revenue & Customs have stressed that the UK must follow the judgement of the ECJ, even though no decision has yet been made on how this will happen.

A spokesman for HM Revenue & Customs said: ‘The decision of the ECJ is final and the UK must now follow its judgement.

‘No immediate changes are envisaged. The UK will study the terms of the decision and consult with UK business on what changes need to be made to allow VAT recovery to continue.

‘Revenue & Customs are committed to minimising any additional burdens on business. In the meantime, UK firms can continue to rely on current UK policy.’

ACFO director Stewart Whyte said he has been led to believe by an HMRC source that a compromise between UK Government and Europe is likely.

Whyte said: ‘Happily, the last word I have had from the VAT people is that it looks like an accommodation may be possible between the UK and the EU.

‘There are no guarantees as yet but it seems possible that by an amendment to the UK regulations, our system just might become compliant with the Sixth Directive.’

He suggests companies do nothing at the moment but should ‘be prepared for a serious review if the accommodation cannot be reached’.

In March, Fleet News launched a new campaign after the ruling was announced. The Fleet News FuelWise campaign, in association with Arval, raises awareness and highlights best practice in dealing with the challenge of the ruling and gives advice on key issues.

To read all the articles in our FleetWise campaign, click on the button on the lefthand side of the FNN homepage.

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