A poll of finance bosses, by YouGov for Lex Autolease, has revealed that almost half (43%) of UK firms don’t have a firm grasp of VAT-related company car costs.

One in five (20%) financial decision makers admit to not knowing how much extra VAT they have incurred since the 17.5% rate was re-introduced in January. A similar number (23%) claim the higher rate has generated no extra company car costs on their fleet.

However, when asked to consider where VAT has the biggest impact, a third (36%) were concerned about paying extra tax on fuel, while others expected to see additional VAT on maintenance (13%), leasing rates (19%) and funding (8%). The remainder (25%) couldn’t identify which areas would be hardest hit or indicted that none of these costs would be affected by the VAT increase.

Andrew Hogsden, senior tax consultant, for Lex Autolease says: “The overriding impression from the survey is that a large proportion of firms don’t understand how VAT impacts on the whole life cost of company cars. This is not uncommon because having tax expertise in-house to keep on top of these issues can be impractical and expensive.

“For the majority of fleets, particularly the 40% or so that use contract hire, the underlying rental cost is unaffected by VAT changes. The same applies to business fuel and maintenance because generally VAT can be claimed back.

“But firms do need to pay attention to the funding element of their fleet leasing costs, which is subject to disallowable VAT at 50%. So, for those running cars for business and private use, they will find the tax take is larger than last year.”

Another impact is the likelihood of higher National Insurance contributions (NIC) because this is linked to the car’s VAT inclusive list price. Generally speaking, this will be higher on cars delivered this year.

Lex Autolease calculates that the combined impact of these two costs will increase an average company’s VAT-related contribution by around £3 to £4 per car, per month.

The company also highlights that employees taking delivery of a car this year, compared to last, will experience higher Benefit In Kind (BIK) tax due to VAT-inflated list prices. This, it says, will typically cost drivers an additional £2 to £3 per month.

Andrew Hogsden concludes: “VAT impacts on all types of fleets, but the key benefit of contract hire, as opposed to outright purchase, is that some of the VAT costs are recoverable. So, you will find that as VAT levels increase, leasing becomes a more economic form of financing company cars than traditional forms of funding.

“Businesses should also bear in mind that the UK currently has a VAT rate lower than many of our European neighbours, so another future rise is not out of the question.”

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