Nicolson, Chartered Accountants

49/50 Bayhead, Stornoway, Isle of Lewis HS1 2DZ

European decision will cost island business plenty

Western Isles businesses are expected to pay an extra 16p per litre of petrol used by employees as a result of a case won by the European Commission in the European Court of Justice in March 2005. In essence, the decision will no longer allow employers to reclaim VAT on the fuel element of mileage allowances paid to employees.

Until now, UK businesses have been able to reclaim VAT on fuel used by employees for business travel. However, the European Court of Justice has decided that UK practice is in breach of European law and that businesses are not able to reclaim VAT on fuel used by employees for business travel.

Angus Nicolson of Nicolson, Chartered Accountants, says: "The decision is a serious blow to any business paying mileage allowances for employees, and shows a complete failure to understand how small business work.

"Businesses should immediately consider alternative arrangements to mileage allowances when meeting business fuel costs. This ECJ decision will cost UK businesses hundreds of millions of pounds a year in irrecoverable VAT.

"Until Customs announce their reaction to the decision and the action they will take, businesses are entitled to rely upon Customs current guidance."

ENDS

Issued 1/4/05

Original judgment: http://www.curia.eu.int/en/actu/communiques/cp05/aff/cp050019en.pdf