TaxCorporate TaxUK businesses face £2bn tax hit

UK businesses face £2bn tax hit

British companies are set to take a £2bn hit following a VAT ruling on business expenses by the European Court of Justice last week.

Experts have warned that the case, brought against the Dutch government, is likely to stop one million VAT-registered businesses reclaiming tax paid on expenses claimed by their staff. The commission’s ruling against the Netherlands was specifically aimed at VAT recovery on employee mileage allowances for fuel used on business trips.

But, according to tax advisers, the ruling, if applied to the UK, could add serious costs and administrative burdens to business.

Stuart Hindle, indirect tax partner at KPMG, estimated the cost to be £2bn. He said: ‘While Customs & Excise has said that the change will not be retrospective, the ongoing costs will be huge.’

Steve Wilson, VAT technical manager at Ernst & Young, said: ‘The principle could be extended, but petrol will be by far the biggest element.’

The Institute of Directors hit out at the ruling, and urged member states to move quickly to amend the appropriate directive.

‘It’s a bloody stupid ruling,’ said the IoD’s deputy head of policy Richard Baron.

However, a spokesperson for Customs & Excise dismissed experts’ fears as ‘scaremongering’. ‘At the moment nothing has changed for UK business,’ she said.

Links

For and Against: Time for a clean sheet on VAT

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