The clock is ticking on a special concession granted to the UK by the European Commission (EC) on how much VAT a business can reclaim.

Since 1995, companies have been able to recover 50% of the VAT incurred on the finance element of a company car leasing fee.

However, the EC requires the Government to justify and renew the rate at which businesses can recover VAT every three years, and the next deadline is in 2014.

The BVRLA is arguing for an increase in the amount fleets would be able to reclaim from 50% to 60%, which would be worth an additional saving of £100 million.

But if this new higher rate isn’t accepted, the BVRLA says the industry could push for the VAT reclaim being settled on a case-by-case basis. This is what already happens in some European countries, but many are wary of the administrative burden such a system in the UK could bring.

David Bird, managing director of Leasedrive Group, said: “I think a nationally agreed fair rate is the way forward, as the case-by-case basis will just add unnecessary red tape.”

In the last review, no change was proposed and prior to that in previous reviews the Government has argued in favour of a continuation of the 50% block given the work involved in a case-by-case assessment.

Individual businesses would have to produce a report showing the split between private and business mileage on their fleet, which could prove to be a major administrative headache for some.

Alastair Kendrick, tax director at MHA MacIntyre Hudson, said: “The only real winners may be the mileage capture companies selling software in this area.”

The BVRLA was contacted by the Government to provide detailed figures to support a renewal of the reclaim rate.

After consulting with a range of business mileage capture providers, it was able to gather figures for more than 200,000 vehicles representing a cross-section of industry sectors, including perk, essential users and Government.

“This showed us that business mileage accounts for roughly 62% of the total, with private mileage at 38%,” said John Lewis, chief executive of the BVRLA.

Bird told Fleet News that the research the BVRLA had undertaken provided a “compelling” argument for an increase in the rates. He said: “Taxation needs to be fair and the current regime is inequitable and unfairly penalises the leasing industry’s customers.”

The figures have left the BVRLA in an interesting lobbying position. “From being where we were looking for data that would support a renewal at 50%, we are now pushing for an increase in the VAT reclaim percentage that is more in line with the true market,” said Lewis.

“Knowing what we do now, it is difficult to see the leasing industry accepting anything less than the introduction of a new 60% block derogation.”

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