One thing that VAT registered businesses sometimes over look is the payment of fuel scale charges. There isn’t a one size fits all option on these, and so each business and vehicle within a business will need considered. You can reclaim all the VAT on fuel if your vehicle is only used for business use and VAT on business related servicing and repairs can be generally reclaimed without any issue. A scale charge is a way of accounting for output tax on road fuel bought by a business for cars that is then used for private use. If you need to use the scale charge, you can recover all the VAT charged on road fuel without having to split your mileage between business and private use. The charge is calculated on a flat rate basis according to the CO2 emissions of the car.
For cars, if there is any element of private use and VAT is reclaimed on the fuel, then an amount of VAT must be paid over on each VAT return, the level of which is determined by the cars CO2 emissions and the VAT return frequency. An example of this would be a car with 134g/km emissions, for the quarterly VAT return ended 31 March 2021. If all VAT was reclaimed on the fuel for this car and it had some private use, then £38.50 of VAT would be payable on the VAT return. You can check the relevant rates for your own circumstances at https://www.gov.uk/fuel-scale-charge
You do not have to apply the scale charge to any car which is not made available for private use. If you opt to use the scale charge you must use it for all cars in which your business fuel is made available for private use. Unfortunately, you can’t use the scale charge for some cars and another method of accounting for the VAT due on the private use of the fuel bought by the business for other cars.
As an alternative to scale charges, you may have the option of only reclaiming the VAT on the business use of a car. To work out how much to reclaim, detailed mileage records must be kept to substantiate the reclaim the business element of fuel use only. This will always be a difficult area, particularly if you have employees who need to detail their mileage. There are App’s for smartphones which may help on this, MileIQ for example. If you don’t use a significant amount of fuel, it may be beneficial to reclaim no VAT on the fuel, and pay over no fuel scale charge. The issue with this final option is that if you choose not to reclaim VAT on fuel for one vehicle, you can’t reclaim VAT on any fuel for vehicles used by your business, so care is needed where you have more than one vehicle.
For commercial vehicles, the fuel scale charge situation can differ. If the private use of a commercial vehicle is on a small scale and incidental to the main use of the vehicle, the provisions for cars don’t have to be applied e.g. where a business owner has a car and a van, if they are required to return the van to their house overnight for security of the vehicle and its contents. If a business owner only has a commercial vehicle it is likely that it will be used for most of the trader’s private motoring – in this case it would then be reasonable to make an adjustments to limit the VAT reclaim on the fuel for the private use of fuel in accordance with the scale charges rules. It is worth noting that if a business has employees with a van, and again they need to return the van to their house for security or other business related purposes, such as being on call, then there would also be no need for a fuel scale charge, on the assumption of incidental private use.
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