HMRC has failed to ask the European Commission for an increase in the amount of VAT companies can recover for leasing cars, despite pleas from the leasing industry for it to act.

Currently fleets can only 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, the BVRLA has said the 50% recovery rate should be increased to 70% for a company car to accurately reflect the proportion of mileage covered on business compared to that used for private use.

The association said fleets who lease their vehicles are overpaying hundreds of millions of pounds in VAT as a result – and this will increase further when VAT rises to 20% in the new year.

It said its research shows business usage (excluding commuting) is responsible for around 70% of distance travelled.
However, HMRC failed to argue the case with the European Commission.

“HMRC has not rejected the BVRLA’s call to increase the VAT recovery for leased cars,” said a spokesman. “There have however, been a number of factors to consider and we have not been able to conclude our discussions with the BVRLA in time to meet the very tight deadlines for renewing the current derogation, which runs out at the end of this year.”

HMRC also said that it believes that the current recovery rate of 50% broadly reflects the business use of leased vehicles across all sectors and therefore continued use of this rate will not have a significant impact on the amount of VAT that UK taxpayers are required to pay.

“We will continue to work with the BVRLA and our joint findings will be used to inform future derogation renewals,” said the HMRC spokesman.

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