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A useful tip that has benefited businesses was to reclaim VAT input tax on part of the mileage allowance paid to employees. For an ‘ordinary’ car this worked out at around 1.5p per mile in VAT.

Unfortunately the European Court has challenged this practice. Apparently the European Commission had been corresponding with the UK Government for several months, if not years, over this issue.

Their problem was that, under UK Law, the business was not required to obtain a VAT invoice for the input tax claim. Further, the UK Law allowed a supply made to the private individual to be given a VAT refund.

At the time of writing, Customs & Excise have made no pronouncement on the changes to be introduced here. The likelihood is that there will be a real restriction on claiming input tax in this way.

The end result is of course higher costs for UK businesses.

April 2005

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