Hi Markie,
Yes you are right, a car allowance is paid gross and taxable. Usually this means that you can then supply any car you wish, however some employers do and can specify what type of vehicle and age you have to use to comply with their policy (such as a minimum standard).
If the company was to lease a vehicle that you were to personally reimburse the company for, there should be no car taxation liability as you are paying for this out of taxed income. I have come across this before as it is often the case a company can get much better deal than an individual on PCP, although it is rare companies operate this deal. However you must reimburse the total monthly rental value that the company pays including VAT out of taxed (net) income, as any shortfall will be classed as a benefit in kind and therefore taxable.
Your company is incorrect with the VAT situation. If they are leasing this vehicle to charge on to you, then they will not be able to reclaim the VAT under the VAT rules, plus only charging you the net will leave you liable for tax on the VAT element.
If your company does not grasp the basics behind such a relatively simple concept it is probably best to supply your own vehicle!!
Duncs