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HMRC plans to repeal the VAT (Treatment of Transactions) Order 1992. The order was introduced to avoid double taxation, but subsequent changes to UK law and policy have obviated the need for it.
The repeal will affect government departments and NHS bodies that supply cars to their employees under salary sacrifice arrangements. It will ensure that these organisations cannot use the legislation to give themselves a VAT recovery advantage over other taxpayers.
The measure follows the decision in R (on the application of Northumbria Healthcare NHS Foundation Trust) v CRC [2020] STC 1720, which has led to the unintended outcome of permitting government departments and NHS bodies to obtain a full refund of VAT in respect of its employees’ own private vehicles. HMRC considers this result is contrary to the operation of the VAT system, which blocks recovery of VAT on private vehicles and private consumption more generally.
