A VAT compliance visitor will arrive with a fairly standard list of questions. They will usually ask whether fuel is being provided for cars used in the business and if so how.
The follow on query will be whether the VAT fuel scale charge is relevant and if so, whether it is actually being accounted for on the VAT returns.
Where all fuel is provided by a business for a car, then:
- All input VAT can be recovered where the VAT fuel scale charge is applied correctly each quarter, or
- No fuel scale charge is applied and so no input VAT at all is recovered, or
- Input VAT is recovered only on the business mileage records, and at the appropriate rate.
This is a very common error, which is why they ask the question. It is quite a complex set of rules for what can be a relatively small amount of VAT.
However it is worth checking that input VAT on fuel is being dealt with accurately to help you avoid back duty VAT charges plus potential penalties.
Fuel provided for a van on the other hand is not subject to the VAT scale charge. Where private use of the van is more than insignificant, however, HMRC expect a business to make a reasonable estimate of the private fuel proportion and block that percentage of input VAT.
Whilst on the subject of vans, when purchased the input VAT can be reclaimed in full assuming they are to be used for predominantly business purposes. However, should an HMRC visitor discover that a van has been used mainly or wholly for private use, that initial recovery of the input VAT could be assessed, again with the possibility of penalties being added.
As the two HMRC departments are communicating increasingly well, any errors uncovered by VAT officers can and have fed through into a further visit by their direct tax colleagues.
Where a missing VAT fuel scale charge has been discovered, direct tax officers can follow up and will review the forms P11D to check they include the fuel benefit for any company cars or show a fuel cost when fuel has been provided to privately owned cars.
Also, where the VAT officers have queried private use of vans, this could also prompt a review of P11D forms for van scale charges and the additional fuel charge where they believe unlimited fuel is being provided.
These do start out as small queries, but can amount to significant costs when assessed over several years with penalties, so a little time checking now can save a significant cost later.
