In the First Tier Tribunal (FTT) case of Cohens Chemist the issue was whether VAT paid on employees’ mileage expenses was recoverable.

Background

The appellant offers a delivery service of prescription medicines.  This service was undertaken by the appellants’ employees, using their own vehicles. The employees buy the fuel which is to be used in their vehicles, with their own money, and later submit claims to the appellants for the payment of a mileage allowance related to the distance covered.  The allowance includes an element of reimbursement for the fuel used.  The appellant then claim credit for the input tax included in the cost of the fuel which they have reimbursed in this way. This is permissible via VAT (Input Tax) (Reimbursement by Employers of Employees’ Business Use of Road Fuel) Regulations 2005. HMRC sought to disallow these claims on the basis that there were no supporting invoices form the petrol stations and that the detailed records kept were not sufficient to support the recovery of VAT.

Decision

Unfortunately for the taxpayer,  it was decided that the failure by to retain fuel receipts in compliance with mandatory requirement of Regulations meant that the disallowance of the input tax claims was appropriate.  This was particularly costly for Cohens Chemist as the input tax at stake here was £67,000. Additionally, the Tribunal held that there was discretion to allow alternative evidence and that this discretion was reasonably exercised to reject the claim.

Commentary 

A very simple lesson to be learned from this case:

Always obtain and retain fuel receipts!  

Failure to do so can be very costly, and it does not matter how detailed and accurate your fuel records are.  You must check your system for the VAT treatment of fuel allowances.