CUSTOMS & Excise has promised to defend the right of fleets to operate the 'pay and reclaim' system for their fuel purchases. This system involves drivers using their own cash or credit cards to buy fuel for business journeys, and then employers recovering VAT on the fuel.

But the European Commission claims that fuel bought in this way is technically supplied to drivers as private individuals, and therefore employers should not be able to recover the VAT on it. Under EC tax law, fleets can only recover VAT on fuel if their staff use a business charge or credit card to pay for it.

The European Court is considering a similar case brought by the EC against the Netherlands, and if the EC wins it is likely to take the UK to court. An official statement from Customs, however, said it was 'confident of success if the matter ever went to the European Court'.