UK Businesses Likely To Face New VAT Threat

by Jason Gorringe, Tax-News.com, London

12 November 2001

Following a European Court of Justice ruling against the Netherlands over the issue of VAT and staff car mileage, there have been fears that businesses in the United Kingdom could soon face additional costs running into tens of millions of pounds.

Although initially the ruling only applies to the Netherlands, the UK supported the Dutch position and now looks set to face similar action from the European Commission. Peter Jenkins, the head of indirect taxation at Ernst & Young UK, sees a gloomy future for the country's business sector: 'The finding will apply to the UK in due course,' he predicted. 'I can't see that we would have grounds for resisting.'

The implications of the Dutch result are far-reaching, as if extended to the UK, they may mean that companies will only be able to reclaim VAT if they have paid expenses directly, or have a suppliers invoice to show that they have done so. Where employees pay expenses themselves, and then submit personal receipts in expense claims, the VAT, worth 17.5%, will be lost.

The ruling has been greeted with dismay by accounting experts and industry groups alike, and the CBI and British Chambers of Commerce condemned the move as 'disastrous'.

The Treasury and Customs and Excise departments are understood to be looking into the implications of the Court of Justice decision for the UK business sector, but have dismissed rumours of a potential impact in the region of billions of pounds as 'scaremongering'.

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