HM Revenue & Customs (HMRC) has admitted that its approach to charging businesses VAT on some of the private fuel made available for private use contravenes EU law and that the rules must be changed.
The point of interest for some businesses will be as follows:
In the absence of detailed mileage records to derive an accurate apportionment, HMRC has traditionally required businesses to account for VAT at least to the extent of the Road Fuel Scale Charge - even where the business has made a smaller charge for the fuel made available for private use. This has meant that some businesses will have been required to pay more VAT to HMRC than the element that would correspond to their actual charge for private use.
As HMRC now admits, this contravenes the Principal VAT Directive. In a Technical Note issued yesterday, ( VAT: Road Fuel Scale Charges - Changing UK Law to Comply with EU Law and Streamlining the Scheme ) they confirmed:
"A deemed supply cannot be imposed where consideration is paid
Under the provisions of the PVD, where a real supply exists no deemed supply can be imposed. Consequently, UK law is wrong to impose RFSCs where a taxpayer makes a real charge for road fuel but that charge is less than cost price."
It is important to note that the business must have received real consideration: these changes will not apply where there has been no charge at all by the business for private fuel use.
Andrew Needham of VAT Specialists, said,
"This development will be very good news for some businesses. If businesses have overpaid VAT, because the VAT on the charge for private use would be less than the Scale Charge then they can make a claim from HMRC going back up to 4 years. The charge to the employee need not be less than the actual fuel cost, just less than the Scale Charge.
Any businesses that think they could benefit from this should make a claim from HMRC for the difference between the Scale Charge and the VAT on the private use charge to the employees."
Further information can be found at HMRC's Revenue & Customs Brief 11/12. Businesses must take care, however, that they do not fall foul of direct tax legislation relating to goods taken for private use or "benefits in kind" for instance for fuel made available at less than cost price (if applicable) to employees.