VAT and tax compliance can be complicated if you’re not an accountant but there are several ways that you can simplify the calculations for your VAT returns. One such method is to apply the VAT fuel scale charge for company cars to account for private fuel consumption.
If you are a business owner and your business supplies fuel for company cars and reclaims the VAT on fuel, then you need to be aware that as of 1 May 2019, the VAT road fuel scale charges have increased. If your staff repay their private business fuel usage or if you have a pool car that is used exclusively for business, then there is no need to use the VAT fuel scale charge.
What Is The VAT Fuel Scale Charge?
The VAT fuel scale charges are applied so that the HMRC can recover the VAT on road fuel that you use for private purposes while driving a company car with fuel supplied by the business. The VAT fuel scale charges should be used by any small or medium business that supplies fuel for its company cars and then recovers the VAT on those fuel costs. If your business recovers VAT on road fuel, you will have to account for output VAT when you use a vehicle for private use, but by using the scale charge tables that can be found here, and applying a road fuel scale charge to your VAT return, you do not need to keep detailed records of your mileage. One scale charge, however, must be applied for each car that is used both privately and for company business. The fuel scale charges are calculated according to a car's CO2 emissions and the fixed charge is added to the output VAT on your VAT return.
The fuel scale charge only applies to cars because it is assumed that commercial vehicles, trucks, and vans are not used for private travel. If your drivers use their work trucks and vans for private travel, and there is significant private mileage on these vehicles, then your VAT claims need to be adjusted to account for this.
Applying The CO2 Emissions Figures
The fuel scale charges are based on the CO2 emissions figures of your company cars and are banded in 5g/km steps from 120g/km or less to 225g/km or more. If the CO2 emissions figures fall between two bands, you can round down. If you have older cars that don’t have CO2 emission figures you need to use band 140 for vehicles with an engine size of 1400cc or less, band 175 for an engine size of 1401cc-2000cc and band 225 for vehicles with an engine size of 2001cc or more. When working with bi-fuel cars that have two CO2 emission figures, you can use the lower of the two figures.
Working Out The VAT On Fuel
The VAT fuel scale charges allow you to account for the VAT on fuel in monthly, quarterly or annual returns. When working out the VAT on fuel, if the company car in question has a CO2 emission of 180g, and you file quarterly returns, the VAT inclusive consideration for a three-month period is £384.00.
The VAT fuel charge for the private use of the vehicle will then be calculated as follows:
£384.00 x 1/6 (the VAT fraction of the total figure) = £64.00
In this example, the VAT due to HMRC is £64.00.
This amount will compensate for any private use of fuel where VAT has already been claimed on the initial purchase of the fuel. If you are not sure how to work out the VAT on fuel or how to apply the VAT fuel scale charge, HMRC has a useful tool on their site (https://www.gov.uk/) that can help you work it out or you can ask your accountant to do it for you.
Alternatives To The VAT Fuel Scale Charge
Using the VAT fuel scale charge is not worth it for all companies, especially if your private fuel use is minimal. If you are not going to use the VAT fuel scale charge, then you can account for VAT based on precise business mileage. In order to do this, you need to keep exact records of business and personal mileage. You can pay a mileage allowance, using the HMRC approved advisory fuel rates to calculate the payments and recoverable VAT, and claim back the VAT. If the business mileage is low and the private mileage is high, then it is often best not to reclaim any VAT at all on fuel.
If you choose to recover output VAT based on mileage payments made to your employees, you need to ensure that the employees submit fuel VAT receipts in order to prove that they have incurred costs and VAT on fuel. If you do not have fuel receipts, the HMRC will deny your VAT claim on mileage reimbursements.
If you use the VAT Flat Rate Scheme, then no VAT is reclaimed on fuel and no scale charge is applied as input VAT is automatically adjusted using a flat rate percentage.
What To Apply The VAT Fuel Scale Charge
According to the HMRC, you can reclaim all the VAT you’ve paid on-road fuel provided you then add back in the VAT on the scale charge appropriate to your vehicle when submitting your VAT return. You need to use the VAT fuel scale charge if you provide free fuel to your employees and reclaim the VAT on the fuel. You should not apply the VAT fuel scale charge if you provide free fuel to your employees but do not reclaim any of the VAT on the fuel, if you only reclaim VAT on fuel used for business purposes, if your employees pay for their private mileage fuel or if you have pool cars that are only used for business.
The VAT fuel scale charge can be confusing and for many small business owners, it is easier to ask your accountant to work this out for you. For more information regarding the VAT fuel scale charge, and how to apply it, contact The Financial Management Centre today.