Tag Archives: recover-VAT-fuel

What VAT CAN’T you claim?

By   12 August 2024
VAT Basics
The majority of input tax incurred by most VAT registered businesses may be recovered. However, there is some input tax that may not be. I thought it would be helpful if I pulled together all of these categories in one place:

Blocked VAT claims – an overview

  • No supporting evidence

In most cases this evidence will be an invoice (or as the rules state “a proper tax invoice”) although it may be import, self-billing or other documentation in specific circumstances. A claim is invalid without the correct paperwork. HMRC mayaccept alternative evidence, however, they are not duty bound to do so (and rarely do unless the amount is minimal). So ensure that you always obtain and retain the correct documentation.

  • Incorrect supporting evidence

Usually this is an invalid invoice, or using a delivery note/statement/pro forma in place of a proper tax invoice. To support a claim an invoice must show all the information set out in the legislation. HMRC are within their rights to disallow a claim if any of the details are missing.

  •  Input tax relating to exempt supplies

Broadly speaking, if a business incurs VAT in respect of exempt supplies it cannot recover it. If a business makes only exempt supplies it cannot even register for VAT. There is a certain easement called de minimis which provide for recovery if the input tax is below certain prescribed limits. Input tax which relates to both exempt and taxable activities must be apportioned. More details of partial exemption may be found here.

  •  Input tax relating to non-business activities

If a charity or NFP entity incurs input tax in connection with non-business activities this cannot be recovered and there is no de minimis relief. Input tax which relates to both business and non-business activities must be apportioned. Business versus non-business apportionment must be carried out first and then any partial exemption calculation for the business element if appropriate. More details here

  •  Time barred

If input tax is not reclaimed within four years of it being incurred, the capping provisions apply and any claim will be rejected by HMRC.

  •  VAT incurred on business entertainment

This is always irrecoverable unless the client or customer being entertained belongs overseas. The input tax incurred on staff entertainment costs is however recoverable. A flowchart for recoverability in this area here.

  •  Car purchase

In most cases the VAT incurred on the purchase of a car is blocked. The only exceptions are for when the car; is part of the stock in trade of a motor manufacturer or dealer, or is used primarily for the purposes of taxi hire; self-drive hire or driving instruction; or is used exclusively for a business purpose and is not made available for private use. This last category is notoriously difficult to prove to HMRC and the evidence to support this must be very good.

  •  Car leasing

If a business leases a car for business purposes it will normally be unable to recover 50% of the VAT charged.  The 50% block is to cover the private use of the car.

  • Fuel costs

The element of fuel costs used for personal use is blocked. There are three ways to treat input tax on fuel:

    • claim 100% of the VAT charged. This is possible if fuel is bought for business motoring only or for both business and private motoring and the appropriate road fuel scale charge is applied on the value of supplies of fuel for private use
    • use detailed mileage records to separate business mileage from private mileage and only claim for the business element
    • claim no input tax
  •  A business using certain schemes

For instance, a business using the Flat Rate Scheme cannot recover input tax except for certain large capital purchases, also there are certain blocks for recovery on for Tour Operators’ Margin Scheme (TOMS) users

  •  VAT charged in error

Even if a business obtains an invoice purporting to show a VAT amount, this cannot be recovered if the VAT was charged in error; either completely inappropriately or at the wrong rate. A business’ recourse is with the supplier and not HMRC.

  •  Goods and services not used for a business

Even if a business has an invoice addressed to it and the services or goods are paid for by the business, the input tax on the purchase is blocked if the supply is not for that business’ use. This may be because the purchase is for personal use, or by another business or for purposes not related to the claimant business.

This is not input tax and therefore is not claimable. However, there are exceptions for goods on hand at registration and which were purchased within four years of registration, and services received within six months of registration if certain conditions are met.

  •  VAT incurred by property developers

Input tax incurred on certain articles that are installed in buildings which are sold or leased at the zero rate is blocked.

  •  Second hand goods

Goods sold to a business under one of the VAT second-hand schemes will not show a separate VAT charge and no input tax is recoverable on these goods.

  •  Transfer of a going concern (TOGC)

Assets of a business transferred to you as a going concern are not deemed to be a supply for VAT purposes and consequently, there is no VAT chargeable and therefore no input tax to recover.

  •  Disbursements

A business cannot reclaim VAT when it pays for goods or services to be supplied directly to its client. However, in this situation the VAT may be claimable by the client if they are VAT registered. For more on disbursements see here.

  •  VAT incurred overseas

A business cannot reclaim VAT charged on goods or services that it has bought from suppliers in other EU States. Only UK VAT may be claimed on a UK VAT return. There is however, a mechanism available to claim this VAT back from the relevant authorities in those States. Details here. However, in most cases, supplies received from overseas suppliers are VAT free, so it is usually worth checking whether any VAT has been charged correctly.

  • Business assets of £50,000 and more

There are special rules for reclaiming input tax using the Capital Goods Scheme, which means a business must spread the initial VAT claimed over a number of years.

VAT: Updated Road Fuel Scale Charges

By   3 May 2023

HMRC has published updated Road Fuel Scale Charge (RFSC) tables for the recovery of input tax on motoring costs which start on 1 May 2023.

RFSC

A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to split mileage between business and private use. The charge is calculated on a flat rate basis according to the carbon dioxide emissions of the car.

VAT due on the charging of electric vehicles

By   1 June 2021

As a result of enquiries from businesses and trade representatives, HMRC has announced that output tax is due on electric vehicle (EV) charging.

The use of EV charging points is becoming more common in public places. HMRC has clarified the rules in specific cases, and confirm:

Output tax

Supplies of EV charging through charging points in public places are charged at the standard rate of VAT. There is no exemption or relief .

NB: There is a reduced rate of VAT for supplies of small quantities of electricity, known as ‘de minimis’. However, the de minimis provision only applies if the supply of electricity is all of the following:

  • ongoing
  • to a person’s house or building
  • less than 1,000 kilowatt hours a month

Consequently, the de minimis provision does not apply to supplies of EV charging as this is done at charging points in public places, eg; car parks, petrol stations and on-street parking, and not to a person’s house or building.

Input tax

A business may recover the input tax incurred in charging its EVs if all of the following apply:

  • it is a sole proprietor
  • you charge your EV vehicle at home
  • the EV is used for business purposes (an apportionment must be made between business and private use)

If an employee charges an EV (which is used for business) at home (s)he cannot recover the input tax as the supply is made to the employee and not to the business.

If an employee charges an employer’s EV (for both business and private use) at the employer’s premises the employee will need to record the business and private mileage. Recovery of the full amount of VAT for the supply of electricity used to charge the EV is permitted (including the electricity for private use). However, output tax will be due on the charge on the amount for private use. Alternatively, a business may recover VAT on only the business element.

VAT: Recovery of input tax on fuel costs

By   22 April 2020

Fuel costs

Road Fuel Scale Charge (RFSC) simplification.

It is common for a staff member to use a car for both business and private purposes (a staff member also covers sole proprietors and partners). Input tax is only recoverable in respect of the business use, so an apportionment is required. This may be done in the following ways.

  • Apply the RFSC. This is a set figure per month which represents a disallowance for private use and is repaid to HMRC
  • Keep detailed mileage records and only claim for the business element
  • If a business pays a mileage allowance for exact business miles travelled it may reclaim input tax on that actual payment. HMRC publish approved Advisory Fuel Rates, which are used to calculate the payments and the recoverable VAT
  • Do not make a claim at all (if business mileage is minimal or the administration outweighs the cost benefit)

Application

One RFSC must be applied for each car that is used both privately and for business. The fuel scale charges are calculated according to a car’s CO2 emissions and the fixed charge is added to the output figure on the VAT return.

A business will need to check the relevant car’s CO2 emissions figure. This is available for the car’s log book. For dual fuel cars, the lower of the two figures is used.

The calculation

The RFSC allows a business to account for the VAT on fuel in monthly, quarterly or annual returns. When calculating VAT on fuel, if the relevant car has a CO2 emission of 160g, and the business files quarterly returns, the VAT inclusive consideration for a three-month period is £319.00.

The RFSC for the private use of the vehicle will then be calculated as follows: £319.00 x 1/6 (the VAT fraction of the total figure) = £53.16

In this example, the VAT output tax due to HMRC is £53.16 and this is included in Box 1 of the VAT return.

This amount will compensate for any private use of fuel where VAT has already been claimed on the initial purchase of the fuel.

Notes

If a business uses the Flat Rate Scheme no VAT is reclaimable on fuel and no scale charge is applicable.

The RFSC does not apply to commercial vehicles (vans, lorries etc) however, if there is a significant level of private mileage, VAT claims should be adjusted to exclude input tax on this.

HMRC publish updated RFSC valuation tables annually. The latest table is here

Input tax claims may be restricted due to partial exemption or non-business activities.

Help

HMRC have also published a useful ready reckoner tool which assists with the process here

Mileage payments

If a business recovers input VAT based on mileage payments made to employees, it must ensure that employees submit fuel VAT receipts evidencing that they have incurred costs and VAT on fuel. Without such receipts, HMRC may deny the VAT recovery on mileage reimbursements. Clearly, the total VAT incurred on fuel must exceed the business element claimed.

Penalties

Unfortunately, as always with VAT, if errors are made, penalties and interest could apply.