Menzies Chartered Accountants (www.menzies.co.uk), one of the
South-East‘s leading accountancy firms, are warning employers that they
could soon see a change in the law that will mean they will no longer
be able to reclaim the VAT on the petrol expenses of their employees.
For
some businesses, particularly those running a fleet of vehicles or
employing sales staff that are constantly on the road, this can mean an
increase to company expenditure. This is especially true if one looks
beyond the decision itself to its far reaching effects
Last week the European Court of Justice ruled that the practice of
employers deducting VAT from the fuel element of the mileage allowance
claimed by employees when purchasing petrol is contrary to EU law. The
current fuel element rates that HM Customs and Excise allow employers
is 12p per mile for cars less than 2000cc and 14p per mile for cars
over 2001cc.
"The court took the view that the employee is not a
taxable person, since they are not VAT registered, and therefore unable
to provide the employer with a VAT invoice." Says Malcolm Nichols, VAT
specialist at Menzies "The unfortunate result for the employer is that
he has no VAT invoice to produce to support his VAT reclaim."
Nichols warns employers that the decision goes beyond just recovering VAT on petrol expenses.
"The
decision basically means that any purchase the employee makes, which
the employer then reimburses, will now no longer be subject to a VAT
reclaim. So for instance, overnight accommodation, telephone bills, ,
and the food and drink an employee purchases for himself whilst on
company business will no longer be recoverable." Adds Nichols.
The
Government is not giving up without a fight and have said that they
will seek ways around this decision. Whether they do remains to be
seen, but Nichols believes employers can use an alternative and more
reliable method to reclaiming the VAT.
"If employers supply
employees with a company fuel card and the petrol is purchased using
the card then the employer will receive a tax invoice for the petrol at
the end of the month from the company issuing the fuel card. The
employer will then be able to reclaim all the VAT charged." Says
Nichols.
"This obviously avoids problems surrounding petrol
expenses, but still leaves unresolved how to deal with the other
expenses an employee incurs. We wait to see the Government's response,
but hope that they will consult fully with employers before any
redrafting of the VAT rules, to avoid ever more increasing costs for
businesses." Concludes Nichols.
{mos_sb_discuss:2}
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