The clock is ticking on the opportunity for fleets to obtain VAT refund windfalls collectively totalling millions of pounds.
Companies have until March 31, 2009 to lodge claims with HM Revenue & Customs for VAT refunds dating back to 1973 in two separate areas.
HMRC will consider VAT refunds on:
• Fleet support bonus payments paid to companies that outright purchased vehicles between 1973 and 1996/7. These were back-end volume related bonuses typically paid by vehicle manufacturers and/or dealers to large fleets on which VAT would have been paid at the time.
• Mileage reimbursement payments made by companies to employees.
The VAT refund opportunity was announced by the Government in the small print of the March 2008 Budget. The 12-month window to lodge a claim follows a series of court cases and legal challenges over many years that reached both the House of Lords and the European Court of Justice concerning VAT overpayments by companies in a variety of areas - including vehicles.
The potential windfall, which even for fleets running just 100 vehicles could run to £100,000, was highlighted by Simon Bush, senior manager, indirect tax, at tax experts KPMG, at a fleet decision-maker workshop hosted by Fleet Support Group, Britain’s largest vehicle management company with a fleet of more than 50,000 vehicles.
More than 70 fleet decision-makers attended the workshop designed to help companies combat the ongoing economic turmoil by promoting initiatives that would enable them to put together ‘an action plan to cut fleet costs’.
Fleet Support Group chairman Geoffrey Bray said: “Reducing cost is top of everyone’s agenda. Vehicles represent a huge area of cost and, unfortunately, there are many organisations that are not dealing with this issue. We believe many companies may not be aware of the VAT refund opportunity identified by KPMG. Companies should lodge claims now, which could result in a significant financial windfall.”
HMRC reacted to initial legal challenges to its VAT rules by introducing a three-year cap on claims in 1997. However, subsequently, the courts ruled that while the three-year cap was not illegal, HMRC had not given companies sufficient time to consider lodging a claim. As a result, this year’s Budget saw the introduction of a 12-month ‘real time transition period’ for VAT reclaims to be lodged that expires on March 31, 2009.
Mr Bush said: “The three-year cap on claims was introduced in 1997, but that does not stop companies from lodging a claim for overpaid VAT in the 23-year period following the introduction of VAT in 1973.
“In 1997 HMRC accepted that retrospective volume related bonus payments were not VATable having originally said they were. As a result fleet operators can now put in a claim for overpaid VAT.
“We have dealt with claims running into hundreds of thousands of thousands of pounds so it is worth claiming.”
Expert advice says that it is crucial to lodge a claim prior to the deadline. Companies that are successful in their claim may have to wait up to six or more months for a refund
Figures produced by KPMG suggest that on a fleet of 100 cars with a list price of £15,000 a typical average bonus payment could be 10% (£150,000). With VAT at the time paid at 15%, the overpayment would be £19,568. With bonus payments possibly made over several years VAT reclaims could be significant - perhaps £156,520 over eight years plus interest thus running to a windfall of more than £300,000.
Meanwhile, companies have always been able to reclaim VAT on the fuel element of mileage allowance payments. However, KPMG believes that many companies have overlooked the allowance.
For example, on a 40p per mile reimbursement payment the fuel element could be 15p, of which VAT would account for 2.24p.
Mr Bush said: “That may seem like a tiny sum, but businesses that have never lodged a claim and can go back 23 years a lot of money is at stake. For example, £10,000 a year in overpaid VAT would result in a windfall of £230,000 potentially with interest. However, post 1997 VAT refund claims can only be made for the last three years due to the cap.”
He concluded: “The amount of money that is potentially at stake is colossal and in the current economic climate would provide to be a welcome boost to all businesses.”
• If you think you may have a claim you should contact Simon Bush at KPMG on 020 7311 2518.