Despite being presented with independent findings to show that a typical company car driver’s work-related mileage is closer to 60%, the government has decided to maintain the VAT derogation level at 50%.
VAT derogation simplifies the tax accounting for lease or rented cars by providing an average VAT percentage that is applied to the finance element of the rental payment.
Reviewed every three years, the current level of VAT derogation is due to expire on 31 December 2019. The present rate of 50% has been in place since 1995, based on the assumption that approximately half of a typical company car driver’s mileage is business-related.
HMRC had suggested that the derogation should be reduced, due to data they had collected which suggested that the average proportion of business mileage was less than 50%. Such an adjustment to the derogated VAT recovery rate would increase the tax bill for all UK businesses using leased and hired cars.
To counter this risk, the BVRLA commissioned two surveys from YouGov and Sewells to help establish whether the current 50% business/leisure mileage split assumption was correct. Both samples found that the average proportion of business mileage was closer to 60%.
The BVRLA presented its findings to government in November 2018 recommending that UK firms should be able to lawfully and fairly reclaim 60% of the VAT paid on the finance element of the hire or lease payments.
BVRLA Chief Executive Gerry Keaney said: “Our data provides the strongest evidence yet to support an increase to the current 50% derogation. It also supports our message that the company car remains an essential tool for UK businesses.
“Although we have been successful in persuading the government not to reduce this important derogation, we are disappointed that policymakers have not increased the percentage of reclaimable VAT in line with what our figures are telling them.”
