NEW tax rules for cars and certain light commercial vehicles came into force on Wednesday and could pave the way for outright purchase fleets to recover VAT on their company cars. This week HM Customs & Excise created the new category of 'stock in trade' cars for VAT purposes.

The new definition covers cars produced by manufacturers and intended for sale within 12 months, and new cars, including demonstrators, obtained by dealers who intend to sell them within 12 months. Both manufacturers and dealers will be able to recover VAT on the purchase price of these 'stock in trade' cars, but will have to account for VAT on any private use of the cars and for VAT when they sell them.

Customs' acceptance that more sophisticated VAT rules are possible could potentially lead to a system that allowed companies to recover VAT on their company cars in relation to the vehicles' business usage. At the moment outright purchase fleets are barred from recovering any VAT on their company cars if these have any element of private use, even if their primary use is for business.

The rules mean cars are treated differently to virtually all business assets, and Customs has fought for its right to block VAT recovery on company cars right to the European Court of Justice in the TC Harrison, Royscot Leasing and Allied Domecq case. The regime Customs introduced this week, however, could lead to further VAT concessions.