THOSE companies leasing business cars are overpaying on VAT, reports the BVRLA. It wants the government to change the VAT reclamation rules for leased business cars – but HMRC has ignored its latest data.COMPANIES and businesses that lease their company and business cars fleets are overpaying hundreds of millions of pounds in VAT.
Businesses leasing cars are currently only allowed to recover 50% of the VAT portion of the finance element of their rental payments. This percentage is based on the assumed level of private use of the vehicle.
However, mileage figures assembled by us at the BVRLA and shared with HM Revenue & Customs clearly show that the current recovery rate is too low.
Data from more than 120,000 drivers covering nearly 2.5 billion annual miles show that business usage (excluding commuting) is responsible for around 70% of distance travelled. The data proves that this business-private ratio of mileage has been in existence for at least three years.
The current rate of reclaim may have been correct in the past, but the government’s policy of taxing low business mileage users into cash for car or ECO schemes and also taxing company car drivers out of company provided fuel has led to a significant shift in mileage patterns.
On this basis, we want the current 50% VAT recovery rate available to businesses leasing cars to be increased to allow a fairer level of VAT recovery.
Time for another VAT change
The UK’s VAT treatment on leased cars has to be approved by the European Commission every three years. With this approval expiring at the end of this year, there was an opportunity for HMRC to try and seek an improved recovery rate going forward.
However, the government department has chosen to ignore the huge weight of evidence presented by the BVRLA and decided that the recovery rate should be maintained at its current level.
“There is nothing we can do to prevent VAT rising to 20% in January, but we will do our utmost to ensure that leasing customers are treated fairly when it comes to paying it,” said BVRLA chief executive, John Lewis.
“HMRC has chosen to ignore the very robust data we provided in favour of a much smaller sample of 418 drivers based on an anecdotal survey conducted by the Department for Transport, which conveniently backs its own position.”
Letter to HMRC
The BVRLA is writing to HMRC, calling on it to reflect the true business mileage position shown by its data. It is also refuting the department’s justification that the 50% recovery rate is a ‘simple figure’ that ‘businesses are familiar with’.
“Before we were asked to contribute to HMRC’s research on this issue we would probably have been happy to stick with the status quo, but on the basis of the new and very robust data, doing nothing is not an option,” added Mr Lewis.
Further information
If you want to understand more about contract hire leasing and VAT recovery, read our Advice Centre article How to make your business cars more tax efficient.
