Tag Archives: VAT-fuel

VAT: Motoring costs – A guide

By   8 April 2022
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VAT Basics

Nearly all businesses incur car motoring expenses, so here is a guide to the VAT impact:

Buying a car

A business cannot recover the VAT on a car purchase, unless it:

Leasing a car

If a business leases a ‘qualifying car’ for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.

However, a 100% reclaim is possible if it is to be used for hire with a driver for carrying passengers or providing driving instruction.

The 50% block applies to all the VAT on charges paid for the rental of the car. This includes:

  • optional services — unless they’re supplied and identified separately from the leasing supply on the tax invoice
  • excess mileage charge — if it forms part of a supply of leasing but not if it was incurred on an excess mileage charge that forms part of a separate supply of maintenance

Fuel

The options for claiming input tax on road fuel are as follows:

  • claim 100% of the VAT charged. This is possible if fuel is bought for business motoring only or for both business and private motoring and the appropriate fuel scale charge (see below) is applied on the value of supplies of fuel for private use
  • use detailed mileage records to separate business mileage from private mileage and only claim for the business element
  • claim no input tax

Road Fuel Scale Charge

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to split mileage between business and private use. The charge is calculated on a flat rate basis according to the carbon dioxide emissions of the car. The charges are set out in the fuel scale charge table.

Mileage records

HMRC calculation example:

  • Total mileage: 4,290
  • Business mileage: 3,165
  • Cost of fuel: £368.
  • Business mileage: £368 × (3,165 ÷ 4,290) = £271.49
  • Claimable input tax: £271.49 × VAT fraction = £45.25

Fuel paid for by employees

If a business reimburses its employees for fuel used it can treat the VAT they paid as its input tax. But the business must be able to show that it has reimbursed them for their actual expenditure on the fuel. If fuel bought by employees for business is put into private use, the business must account for output tax on the private use using the scale charges or the value.

Electric vehicles

Details of input tax recovery and output tax due here.

Input tax on repairs 

If a vehicle is used for business purposes, there is a 100% reclaim of the VAT charged on repairs and maintenance as long as the business paid for the work and the vehicle is used for some business purposes. It does not matter if the vehicle is used for private motoring or if you have chosen not to reclaim VAT on road fuel (see below).

Other motoring expenses

Input tax incurred on all other business motoring expenses, eg; fleet management charges or parking charges is fully recoverable input tax.

Selling a car

If a car is sold on which input tax was recovered, eg; a driving school car, VAT is due on the full selling price. The supply of these vehicles are cannot be made under the second hand margin scheme.

If a car is sold where VAT was charged on purchase but could not be recovered there is no VAT due on the sale of it. Such a supply is exempt and must be consider in any partial exemption calculation. For most businesses this will not be an issue.

If a business sells a car where VAT was not charged when it was purchased, eg: from a private individual or from a dealer who sold it under the second-hand margin scheme, no VAT will be due unless the sale was at a higher value than the purchase price. In which case VAT will be due under the margin scheme.

NB: The VAT rules for commercial vehicles will differ.

VAT due on the charging of electric vehicles

By   1 June 2021
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As a result of enquiries from businesses and trade representatives, HMRC has announced that output tax is due on electric vehicle (EV) charging.

The use of EV charging points is becoming more common in public places. HMRC has clarified the rules in specific cases, and confirm:

Output tax

Supplies of EV charging through charging points in public places are charged at the standard rate of VAT. There is no exemption or relief .

NB: There is a reduced rate of VAT for supplies of small quantities of electricity, known as ‘de minimis’. However, the de minimis provision only applies if the supply of electricity is all of the following:

  • ongoing
  • to a person’s house or building
  • less than 1,000 kilowatt hours a month

Consequently, the de minimis provision does not apply to supplies of EV charging as this is done at charging points in public places, eg; car parks, petrol stations and on-street parking, and not to a person’s house or building.

Input tax

A business may recover the input tax incurred in charging its EVs if all of the following apply:

  • it is a sole proprietor
  • you charge your EV vehicle at home
  • the EV is used for business purposes (an apportionment must be made between business and private use)

If an employee charges an EV (which is used for business) at home (s)he cannot recover the input tax as the supply is made to the employee and not to the business.

If an employee charges an employer’s EV (for both business and private use) at the employer’s premises the employee will need to record the business and private mileage. Recovery of the full amount of VAT for the supply of electricity used to charge the EV is permitted (including the electricity for private use). However, output tax will be due on the charge on the amount for private use. Alternatively, a business may recover VAT on only the business element.

VAT: New Road Fuel Scale Charges

By   7 May 2021
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HMRC has updated the valuation table: Road Fuel Scale Charges (RFSC) from 1 May 2021 to 30 April 2022 here.

RFSC

If a business reclaims VAT incurred on road fuel, it will be required recognise the private use element of the fuel.

The RFSC simplifies accounting for VAT on the private use of fuel by motorists. The RFSC is calculated according to a car’s CO2 emissions and the fixed charge is added to output VAT, on the VAT return (in effect, the business supplies to fuel to the individual). The use of this charge is optional, the alternative is to keep detailed mileage records.

A quick RFSC calculator/ready-reckoner is here.

VAT: Recovery of input tax on fuel costs

By   22 April 2020
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Fuel costs

Road Fuel Scale Charge (RFSC) simplification.

It is common for a staff member to use a car for both business and private purposes (a staff member also covers sole proprietors and partners). Input tax is only recoverable in respect of the business use, so an apportionment is required. This may be done in the following ways.

  • Apply the RFSC. This is a set figure per month which represents a disallowance for private use and is repaid to HMRC
  • Keep detailed mileage records and only claim for the business element
  • If a business pays a mileage allowance for exact business miles travelled it may reclaim input tax on that actual payment. HMRC publish approved Advisory Fuel Rates, which are used to calculate the payments and the recoverable VAT
  • Do not make a claim at all (if business mileage is minimal or the administration outweighs the cost benefit)

Application

One RFSC must be applied for each car that is used both privately and for business. The fuel scale charges are calculated according to a car’s CO2 emissions and the fixed charge is added to the output figure on the VAT return.

A business will need to check the relevant car’s CO2 emissions figure. This is available for the car’s log book. For dual fuel cars, the lower of the two figures is used.

The calculation

The RFSC allows a business to account for the VAT on fuel in monthly, quarterly or annual returns. When calculating VAT on fuel, if the relevant car has a CO2 emission of 160g, and the business files quarterly returns, the VAT inclusive consideration for a three-month period is £319.00.

The RFSC for the private use of the vehicle will then be calculated as follows: £319.00 x 1/6 (the VAT fraction of the total figure) = £53.16

In this example, the VAT output tax due to HMRC is £53.16 and this is included in Box 1 of the VAT return.

This amount will compensate for any private use of fuel where VAT has already been claimed on the initial purchase of the fuel.

Notes

If a business uses the Flat Rate Scheme no VAT is reclaimable on fuel and no scale charge is applicable.

The RFSC does not apply to commercial vehicles (vans, lorries etc) however, if there is a significant level of private mileage, VAT claims should be adjusted to exclude input tax on this.

HMRC publish updated RFSC valuation tables annually. The latest table is here

Input tax claims may be restricted due to partial exemption or non-business activities.

Help

HMRC have also published a useful ready reckoner tool which assists with the process here

Mileage payments

If a business recovers input VAT based on mileage payments made to employees, it must ensure that employees submit fuel VAT receipts evidencing that they have incurred costs and VAT on fuel. Without such receipts, HMRC may deny the VAT recovery on mileage reimbursements. Clearly, the total VAT incurred on fuel must exceed the business element claimed.

Penalties

Unfortunately, as always with VAT, if errors are made, penalties and interest could apply.