TaxPersonal TaxRoad tolls set to increase after European VAT ruling, warns KPMG

Road tolls set to increase after European VAT ruling, warns KPMG

Road and bridge tolls are likely to rise following a preliminary judgement by the European Court yesterday that the UK is breaching European law by treating tolls as exempt from VAT.

KPMG today warned that if the ruling is confirmed and operators pass on the full costs to motorists, a car driver currently paying £4.20 on the Severn Bridge, for example, will be faced with an increase of almost 75p.

The final judgement is not expected until later this year, but the Court normally follows the opinion of the Advocate General.

Tony Lynne, Head of Indirect Tax, KPMG, said: ‘Toll bridges and tunnels are operated by a range of different bodies, including local authorities. Private sector operators will now need to consider whether the terms of the contract under which they collect tolls allow them to increase their prices to add VAT.

‘If not, contracts will need to be renegotiated. In some cases public subsidies may need to be increased to compensate the operator for changes to expected profits.’

Operators will also be faced with the need to supply VAT invoices to drivers, with all the compliance problems that follow, such as changes to accounting systems, tills and collection methods.

Lynne added: ‘Where new projects are under discussion, negotiations may need to be reopened to allow for VAT to be brought into the calculations.’

Hauliers will have to consider compliance issues such as how their drivers will collect VAT invoices. Whilst individual amounts will be small, the total amount of VAT for a large haulier will be substantial. For most hauliers there will be no actual VAT cost, as they will be able to reclaim VAT as long as they hold the necessary evidence.

The Commission may also seek to collect from the UK treasury its share of underpaid VAT from April 1994.

The Commission also took cases against France, Ireland and Greece which all treat tolls as free of VAT, and similar opinions were released on these.

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