No: C&E 3                            29 November 1994


                        BUDGET 1994 : VAT

                              CARS


The Chancellor proposes that from 1 August 1995 businesses
will be able to recover the VAT they pay on the purchase of cars
bought  wholly for business purposes, primarily leasing.  In these
cases,  businesses will have to charge VAT when they sell the car.

The Chancellor also proposes to introduce at the same time a
provision that only 50 per cent of the VAT applying to car
leasing charges can be recovered where there is any use of the car
for     private motoring. To achieve this, the Chancellor has
authorised an application to be forwarded to the European Commission for a
derogation from the provisions of the Sixth VAT Directive.

The Chancellor's intention is to facilitate business by
responding to trade representations that the current regime distorts the
market place for leased cars. The measure is designed to keep to a
minimum any additional burdens placed on business by the need to
introduce an alternative way of taxing private use.

The draft legislation that will give effect to these arrangements 
is being published for comment by interested parties.  Copies
can be obtained from:


   HM Customs and Excise, VAD5, 4th Floor Central, 
   New King's Beam House
   22 Upper Ground, London, SE1 9PJ.

   Telephone: 0171 865 5314

NOTES FOR EDITORS

1.     Input tax is not recoverable on most new cars
purchased by businesses, with the exception of:

        -    new cars imported by or supplied to dealers
             for resale;

        -   "London" type black cabs; and

        -    cars imported or purchased for research and
             development.

2.     Since 1 August 1992 private taxis, self-drive firms
and driving schools have also been able to recover input tax on
cars purchased for their businesses. The Chancellor extended this
treatment to leasing firms that provide cars for such a
purpose with effect from 1 January 1994.

3.     The 50 per cent input tax restriction that will apply
to leasing charges is a simplified procedure for charging VAT
on leased cars used for private motoring. As such, the Government is
applying  for a European Community (EC) derogation from the provisions
of the    EC Sixth Directive, which provides a uniform VAT structure
for all   Member States.

4.     The cost to the Exchequer is estimated at Pounds 140
million in 1995-96 and Pounds 100 million in 1996-97, although it is
expected to be neutral in the medium term.

5.     A Compliance Cost Assessment (reference CCA 2) is
available,  copies of which can be obtained from Jill Lewis, BACU3, 10th
floor W,  HM Customs & Excise, New King's Beam House, 22 Upper Ground,
London  SE1 9PJ (Tel No: 0171-865-5570).

6.      Details for traders are available in Budget notice BN 81/94.



ISSUED BY:       HM CUSTOMS AND EXCISE,
                 PRESS AND INFORMATION OFFICE,
                 NEW KING'S BEAM HOUSE,
                 22 UPPER GROUND,
                 LONDON, SE1 9PJ

TELEPHONE:       0171 865 5468/5470/5471

FAX:             0171 865 5625