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.