Some businesses have been overcharged VAT on fuel for private motoring due to a flaw in legislation that HMRC has confirmed contravenes the EU’s principal VAT directive.
In the absence of detailed mileage records, HMRC has required businesses to account for VAT to the extent of the road fuel scale charge, even when they have charged the employee a lower amount for fuel available for private use.
It is this that has caused some companies to pay more VAT than the fraction that would match their actual charge for private use.
The VAT road fuel scale charge is designed to assist firms account for VAT when business road fuel is applied for private use and thereby dispensing with the need for detailed records such as those for private mileage.
Where an organisation makes a charge for private fuel, they should be able to account for VAT on the basis of the amount charged to the employee. Businesses will be able to account for VAT on this basis until the error has been rectified.
Where a business has overpaid VAT as a result of this legislative practice they will be able to claim a repayment of the difference between the amount accounted for and the VAT due on the basis of the charge to the employee.
Businesses that have not charged for private fuel use are unaffected by these changes.