European Commission to Block VAT Reclaims on Business Mileage

LONDON, December 17 -- UK business to potentially lose tens of millions if European Court upholds 6th VAT Directive

UK business is set to potentially lose tens of millions of pounds every year in reclaimed VAT as a result of the European Commission's decision to press ahead with a Court hearing designed to enforce its 6th VAT Directive.

The EC Advocate General's decision to ask the European Court to declare the United Kingdom in violation of the 6th VAT Directive, potentially leaves UK business unable to reclaim millions of pounds of VAT, incurred as a result of business mileage expenses.

Currently, many UK businesses allow employees to purchase fuel and then the business reclaims the VAT element, despite the fact that the employee is not VAT registered. Businesses are then entitled to reclaim the VAT on the fuel at 17.5%.

The EC's Directive states that VAT can only be reclaimed if the transaction takes place between two organisations that are registered for VAT. If UK domestic law is amended as a result of any European Court ruling, employers could only continue to reclaim VAT on fuel transactions if the transaction is directly with a supplier. This could only be achieved via a purchasing mechanism, such as a fuel card or company credit card, that allows for billing to be made in the name of the employer.

Under a business expenses pay and reclaim system, where employees continue to make payment directly to a supplier, the ability to reclaim VAT would be lost.

Arval, one of the UK's largest leasing and fleet management companies, believe that any decision which goes against the UK could have significant financial implications for UK business. Typically, a company running a fleet of 100 vehicles, with drivers averaging approximately 15000 miles per year, will reclaim in the region of GBP23,000 per year from HM Customs & Excise.

Mike Waters, Head of Market Analysis at Arval comments: "The level of awareness of the dispute between the UK and the European Union over the 6th VAT Directive is worryingly low. 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. Potentially, 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."

Editor's Notes - Arval

Arval is the UK's largest fleet and fuel management company and has been providing solutions to public and private sector organisations in the UK for more than 25 years. It offers a full range of vehicle management services for cars and vans, dealing with major national and international corporate customers as well as the SME sector.

Arval's comprehensive array of products includes contract hire, maintenance, accident management, fuel management through the AllStar fuel card, Employee Car Ownership (ECO) schemes, vehicle rental and breakdown and recovery. In addition, specialist commercial vehicle management services are provided by its sister company Artegy. Both Arval and Artegy are owned by multinational banking group BNP Paribas.