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Reimbursing car expenses

A company leases a car which it provides to an individual. In order to reduce the benefit in kind charge, the individual makes a payment to the company. The monthly leasing charge is £1,000 plus irrecoverable VAT of £100. Other running costs (insurance, etc.) amount to £200 plus (say) £40 VAT. What is the VAT treatment of the payments by the individual to the company? 1. The BIK charge is £1,050 so he pays £1,050 to the company. 2. He reimburses the company for the entire costs. After reclaiming VAT, the cost to the company is £1,300.

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