18 November 2015

BVRLA pushes for businesses to have ‘better deal' on leased vehicle VAT reclaim

Contract hire is the UK's most popular fleet funding solution and one of the reasons for that is the VAT benefits available versus outright purchase – and that advantage could further improve in 2016.

VAT registered companies are currently able to make a full reclaim on the finance element of the rental cost if the vehicle is used exclusively for business purposes; 50% on the finance element of the rental cost if a vehicle has dual business and private use; and 100% on maintenance costs and so-called ‘additional services’ irrespective of usage.

However, the British Vehicle Rental and Leasing Association (BVRLA) has called on the UK government to support its call for businesses to be able to reclaim 60% of the VAT on vehicle lease payments.

The 50% rate has been set since 1995. The ‘derogation’ must be approved by the European Commission, which requires the UK government to justify and renew it every three years. The current arrangement comes to an end on 31st December 2015.

The 50% VAT block on the ‘basic rental’ element of the monthly lease – also applicable to vehicle hire charges – was originally introduced because data suggested that at least half of the miles travelled by company cars were private rather than business.

However, the BVRLA has now surveyed a wide variety of companies for their leased business cars’ mileage data – 61,000 leased vehicles used for business and private use which collectively had covered more than 795 million miles in the past calendar year – and says more than 60% of the total miles travelled annually by leased cars was for business use.

Consequently, BVRLA chief executive Gerry Keaney said: ‘The results of our 2015 survey provide robust evidence that the UK government should now renew the VAT derogation to ensure UK firms leasing cars are able to lawfully and fairly reclaim 60% of the VAT paid on the finance element of hire or lease payments.’

If the government supports the BVRLA’s position, a move to 60% would improve companies’ VAT position.