VAT road fuel scale charges
HMRC operates a simplification measure that allows businesses to use a standardised scale charge to value fuel costs for private use when completing VAT returns. The scale charge is a fixed amount based on a vehicle’s CO2 rating. This saves business car users the chore of keeping detailed records of actual private mileage.
A VAT partial exemption concession on the use of the road fuel scale charges scheme will be withdrawn with effect from 1 January 2014. The concession helped solve an anomaly in the rules by allowing the road fuel scale charges to be reduced by applying the partial exemption recovery rate. This means that the output tax declared on private use fuel is consistent with the actual input tax deduction on that fuel.
The use of Extra Statutory Concessions (ESCs) has been significantly reduced over recent years as the Courts don’t agree with HMRC’s discretionary approach even in cases where such a decision directly benefits the taxpayer. Many ESCs have been given a proper legal basis but this particular concession cannot. However, a new ‘fuel sector’ formula will give a similar overall VAT result to that obtained under the concession. Businesses may also ask HMRC’s approval to use another method.