A Twist in the Tale of VAT Reclaim

Last month, the British Vehicle Rental and Leasing Association (BVRLA) held its annual industry conference, which was chaired this year by our very own Peter Cakebread. The agenda was packed full of topical issues, but one piece of news that stood out for us was the latest instalment of the VAT reclaim story.

When the Government revisited the issue of VAT reclaim recently it looked as though it would be bad news for businesses… Now, however, it appears that the tale could be one of woe for the Government instead – who in trying to justify a reduction in the VAT reclaim percentage may have in fact done just the opposite.

Businesses are currently able to reclaim 50% of the VAT on the finance aspect of car leasing agreements. This figure has remained constant since as far back as 1995. However, when re-examining the figure again recently – in advance of the next renewal deadline in 2014 – the Government was keen to see it reduced to 40%. It turned to the BVRLA for information and in response the association conducted extensive research on the ratio of business use versus private use for company cars.

Data relating to over 200,000 vehicles from a cross section of the industry was collected. The results showed that on average business mileage accounts for approximately 62% of the total, with private mileage at 38%. If the VAT reclaim percentage is indeed to be changed, this latest research suggests that perhaps an increase should be on the cards rather than a reduction.

How the story will end is yet to be seen, but the BVRLA believes there is a case for asking the Government to increase the VAT reclaim figure to 60%. This would of course be very welcome news. We will be watching and waiting with eager anticipation.