What are the effects of the EU Sixth Directive
The EU Sixth VAT Directive requires all EU member states to charge VAT in the same way. That means that in the UK this Directive will stop reclaiming VAT on invoices that are not in the registered company name.
At present UK companies can claim back the VAT on many items, one of which is fuel, which is often invoiced to employees by way of a till receipt. This Directive could stop this process and potentially every litre of fuel will cost an extra 17.5 %( the VAT rate from 1st January 2010). There is no better reason for all companies to look at their fuel management procedures and implement a VAT compliant solution. The EC's Directive states that VAT can only be reclaimed if the transaction takes place between two organisations that are registered for VAT. This could only be achieved via a purchasing mechanism, such as a fuel card, that allows for charge to be made in the name of the company. Under a business expenses pay and reclaim system, where employees continue to make payment directly to a supplier, the ability to reclaim VAT would be lost. Using a petrol card or diesel card will preclude firms losing out financially every time their employees fill the tank.
It has been measured a company running a fleet of 100 vehicles, with drivers averaging approximately 15,000 miles per year, will reclaim in the region of £23,000 per year from HM Customs & Excise.
Many companies may be incognizant of the effects of this directive and should look to change their fuel buying procedures. This should be done by introducing a arrangement which ensures that billing is made in the name of the business so they can continue to reclaim the VAT on fuel.
If you operate one or more commercial vehicles, and thus far rely on ‘pay and reclaim’ for fuel, you are in all likelihood to be paying to a great extent for the policy. Not only are you being charged top prices per litre, recovering the VAT on such proceedings is very severe and you will lose out on your fuel expenditure. Since the materialisation of the 6th European VAT Directive, the case for fuel cards has never been stronger.
But which card?
There are some significant differences – and the unsuspicious may find themselves still paying more than they need . You should look for cards that offer you:
- Good prices.
- Easy locations.
- Security benefits including purchase restrictions and driver or vehicle specific cards.
- A significant reduction in administration time and paperwork.
- VAT approved invoices outlining all transactions .