I have noticed recently a worrying trend for clients not to apply the fuel scale charge to their books before they finalize the VAT Return. When asked about this the reasons vary from – “Oh – I Forgot” to “We haven’t had a VAT visit for 10 years so we have probably dropped below the radar”.
The fact is, if you are claiming back the VAT input tax on fuel in your business for your car – as most business owners do – then you need to apply the scale charge each quarter to account for the private element of the fuel the business has paid for. The amount you need to adjust will depend purely on the CO2 emissions of your vehicle. A full description of the charges can be found on the HMRC website but below I have reproduced the quarterly scale charges for use from 1st May 2009 for your information here:-
As you can see, the VAT inclusive scale charge varies dramatically and with the highest level currently at £441 per quarter, if you forget to include the charge, of choose not to, in just 3 years you could amass a bill of £690+ interest and maybe a surcharge as a fine – and remember a scale charge is required for each vehicle that private fuel is purchsed for.
However, the fuel scale charge does not apply to all businesses. If you are keeping a track of your business mileage and are using the approved rates from HMRC, no private fuel adjustment is needed as the business is not paying for any fuel anyway.
You may have a car that is classed officially as a pool car – one that is not allocated to a specific employee and is kept locked up at the company premises overnight – then all costs associated with this car would be allowable as private use by any employee is prohibited.
Another way to justify not including the fuel scale charge is to only have the company buy fuel that is used on company business. To prove this you will need to provide an ongoing supply of evidence that you actually buy your own fuel out of your own pocket on a regular basis for your private use.
Lastly, if you are on one of the VAT flat rate scheme, there is no need to adjust for any scale charge as this sort of thing is already taken into account in the scheme you are using.
The answer is maybe.
The thing is, if your company provides you with all your fuel, including private fuel, then there is also a scale charge in your wages for that as well, and if you are self employed, there is an add-back to profit for the amount of private expenses included in motoring.
As most businesses are not run along the same lines as MP’s expenses, I have generally found the mileage rate the best way of funding your car through your business. Alright, you have to keep your mileage log up to date but that is a small price to pay for a legitimate expense through the business and completely tax free in your hands.
That’s the scenario I like the best for me and my clients!
If you would like more information on VAT, scale charges, mileage allowances, or any other matter, please do not hesitate to contact me on 0800 047 0731.