Andrew Hogsden, senior tax consultant for Lex Autolease, said: 'VAT impacts on all types of fleets, but the key benefit of contract hire, as opposed to outright purchase, is that some of the VAT costs are recoverable. So, you will find that as VAT rates increase, leasing becomes a more economic form of financing company cars than traditional forms of funding.'

He added: 'For those firms with a fully-owned fleet, they will see further rises in VAT-related funding costs which can't be claimed back for cars doing private mileage. In that respect, contract hire protects firms against the worst of the tax burden, because 50% of the VAT can be reclaimed.

'For the majority of fleets, particularly the 40% or so that use contract hire, the underlying rental cost is unaffected by VAT changes. The same applies to business fuel and maintenance because, generally, VAT can be claimed back.

'But firms do need to pay attention to the funding element of their fleet leasing costs, which is subject to disallowable VAT at 50%. So, for those running cars for business and private use, they will find the tax take is going to be larger.'