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Tax ruling could cost companies; VAT.

A RECENT judgment by the European Court of Justice may cost Welsh businesses thousands of pounds.

Kilsby and Williams, one of South Wales's fastest-growing firms of accountants, has warned that new legislation could come into effect in the near future that will stop businesses from reclaiming the VAT on reimbursed staff expenses.

Partner Stephen Williams said, "Currently, employers are allowed to reclaim VAT on expenses incurred by staff in the course of their working day, such as petrol, mobile phone calls or accommodation, that the employer reimburses.

"However, a recent ruling by the European Court of Justice stated that such arrangements were in breach of the Sixth Directive.

"The potential consequences of this landmark ruling are enormous, and businesses could find themselves seriously out of pocket unless they alter the way they operate."

The Sixth Directive states that VAT may only be reclaimed on goods and services supplied by one taxable person to another. Employees are not taxable persons in this case.

There is no scope for national governments to interpret the Sixth Directive in order to avoid this, and although the case was brought by the Netherlands on fuel, its findings will equally apply to the UK and could extend to other reimbursed expenses.

Stephen Williams added, "It is likely that the UK will change its legislation to fall in line with the Court's judgement.

"Any changes will not be retrospective so there will be no need to repay VAT that has already been reclaimed.

"However, it would be prudent for businesses to review the position regarding expenses in order to prepare them for the future regime.

"It is possible to avoid the impact of this ruling."
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Title Annotation:Business
Publication:Western Mail (Cardiff, Wales)
Date:Jan 28, 2002
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