The EU's Economic and Financial Affairs Council (ECOFIN) has approved the UK car rental VAT derogation.

At a meeting in Brussels last Friday, the Council approved the UK's request relating to car rental VAT derogation. This will allow the UK to continue to restrict the right of deduction to 50% of the input VAT incurred on the hire or lease of cars used by taxable persons for both business and private use.

The decision will apply from 1 January 2014 until the earlier of the entry into force of rules determining the expenditure relating to motorised road vehicles which is not eligible for a full VAT deduction, or 31 December 2016.

Should the UK wish to apply for a further derogation beyond 2016, it must present a report by 1 April 2016, including a review of the percentage restriction.

The Council also discussed a draft directive aimed at strengthening EU rules on the taxation of savings income and preventing tax avoidance. The proposal aims to enlarge the scope of the current directive, so that it includes all types of savings income and products that generate interest or equivalent income. The discussion confirmed broad support for the amended directive, which will be discussed again in the near future with a view to reaching an agreement.

The EC presented its proposal to introduce a standard VAT return to replace national VAT returns. Under the proposal, a company doing business in one member state could submit a VAT return in another member state because the information and submission would be standardised. This would help reduce the administrative burden on businesses, especially for small and medium sized enterprises. The Council's working group is expected to start examining this proposal in December.

More details are available from the EU HERE