VAT – Fuel Scale Charge

Ray Stewart General, Tax Matters, VAT 2 Comments

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:-

VAT Fuel Scale Charges from 1st May 2009

VAT Fuel Scale Charges from 1st May 2009

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.

You may well be wondering at this point, looking at the amount of VAT adjusted for private use in the scale charge, if it is worth putting any fuel through the business as your quarterly fuel bill never gets above £1,800 – or £600/month.

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.

~Ray
Ray Stewart
I am a qualified Certified Practising Accountant having passed my final exams way back in 1981. I actually can’t believe that was 33 years ago!! Anyway, I am now in my 50’s and I have been running my own business since May 1983. And before you ask, no, I have never regretted a moment of it! Part of the membership requirements of my professional body now dictate that I spend quite a lot of time on “CPD” - continuing professional education (one of their better ideas) - and over the last two years I decided to study business growth and marketing. I have learnt such a lot and that knowledge has radically changed my old “accountants” approach to business. It has made such a difference to the way I work and operate I feel that I just have to pass on this knowledge. It is simply too powerful to hold back!! - but I will try and do it in simple terms rather than expecting you to spend hours, as I had to, working through the difficult language that trainers seem to use to pass on their concepts. I hope you find the blog a useful resource and interesting place to visit as the months pass. I will do my best to keep up the flow - but if there are any topics you would like me to cover, then please let me know. Ray Stewart
Ray Stewart
Ray Stewart

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Comments 2

  1. Hi Ray,

    You are aware that you only pay the VAT element of the scale charge? Therefore, assuming 3 years (at a 15% VAT rate for ease) the VAT due per quarter on a top band car is £57.52 (£441 x 3/23) – after 3 years you would have underpaid £690!!

  2. Post
    Author

    Thanks Martin. It wasn’t completely obvious that the scale charges were VAT inclusive so I am pleased you pointed it out and I have amended the text to make this point more clearly – hopefully!

    Ray

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