VAT - 01.09.2006

Yet another scale rate increase

VAT scale charge

Rules. Are you reclaiming VAT on petrol for private motoring? If you do this the VATman will insist that you pay him a “VAT scale charge” to compensate him. This charge is based on the engine size of the car.

The change. The new VAT scale charges to be used on your first (quarterly) return following May 1, 2006 are:

(*) For monthly returns, divide the scale rate by three, i.e. £273 becomes £91 and so on.

VAT return. The scale charge must be added to the output tax (Box 1), on the VAT return, i.e. for a petrol 2,000cc car the output tax for the quarter is £75.65 (output £508 x 17.5/117.5) per car.

Trap. If you have a second car with private fuel provided, even with low mileage, there is a second scale charge. Tip. Don’t provide fuel for private motoring in the second car.

Hit list. Scale charges are the most common omission from VAT returns. Hence a VATman will always look for this whenever he performs a “compliance visit”. It is easy to spot from the records, and he can and will charge you for the missing VAT plus interest - he can go back up to three years.

Evidence. If you have not borne the cost of private motoring, then the VATman will expect you to be able to prove this by having available detailed mileage records.

Worth paying?

Example. A 2,500cc Audi will cost you £75.65 per quarter in VAT. To make it worthwhile paying the scale charge, you need to be spending at least £508 per quarter on petrol for private journeys - roughly £170 per month.

Tip. If your accounting system allows you to, set up an automatic adjustment or journal to record this scale charge. This will save you having to remember it. Alternatively, have a checklist of things to remember pinned to the front of your VAT file to remind you.

Driver repays. What if the company car drivers repay you in full for the fuel used privately? No scale charges are due, however, the business will then have made a taxable supply of fuel equivalent to the amount which the driver pays and VAT will be due. For example, the company car driver uses ten litres per week on private journeys but reimburses the company. The business will have to account for VAT on £9.90 (ten litres at 99p per litre), equivalent to £1.47 (£9.90 x 17.5/117.5) per week, i.e. £17.64 a quarter.

Concession. If your total input tax recovery on fuel is less than the scale charge you can opt out of it, however you must inform the VATman in writing.

Trap. You can use this concession provided you do not reclaim the VAT on any road fuel, including for your commercial vehicles.

Tip. Don’t opt out of the scale charge scheme altogether if you are going to lose more by not being able to claim VAT on fuel for your commercial vehicles. Instead consider removing the provision of private fuel altogether.