Hi, Limited company with one director and is VAT registered. The director is using his own car to visit clients. As far as I know (but will have to investigate) no mileage record kept. He has been paying for fuel on a credit card which is in the companies name.
How would the fuel be treated? Do I merely CR the credit card and DR Motor Expenses and DR VAT or does is have to hit the directors loan account?
Should I make an adjustment for private use of the director?
I would suggest you get some mileage records put together and claim mileage at the relevant rates and put all the fuel costs into the directors loan accounts to offset against the mileage claims made so you are left with a balance owing to the director (this depends on the value of the mileage claims if they are more than the fuel paid for). You can also claim VAT back on the mileage!
If you don't want to do that, you can put the car into the company. The company can buy the car off the director, but if the director uses the car for private use, then this will give rise to a benefit in kind. You can them put through all the cars expenses such as insurance, car tax, fuel and repairs.
You can make an adjustment for the private use, but to be fairly accurate you would really need the mileage details anyway.
The problem you have is that it may be more beneficial to claim mileage depending on the number of miles done, or it could be more beneficial to have the vehicle as a company car.
You really need to get someone to look at this is an overall sense so the Director can see which is better him. Not easy to do, but his accountant would be better placed to work this out for a small fee.
Because it is his car and he is paying for the fuel on the company card then all expenses should be posted to the Directors loan account. You cannot claim back the VAT or put the expensesto Motor expenses with the current treatment.
The best thing is to explain that if a mileage log is kept then he can claim 40p per mile (up to 10,000 miles) and 25p per mile thereafter completely tax free. It is worth them doing it properly as 10,000 miles would mean £4k tax free for the director and a tax deductable expenses in the Profit & Loss account.... bit of a no brainer for them really
You can also claim back an element of the VAT (I have just posted a free spreadhseet calculator for this on another link..)
Doubt he will disagree that keeping a mileage log is beneficial.
If all petrol expenses are posted to motor expenses and VAt is reclaimed then HMRC will (on investigation) have a field day...
Thanks for the replies. Client is adamant he wants the fuel receipts posting as motor expenses. I think what I will do is post the fuel to motor expenses but not reclaim any VAT. I'll put a note on the records for the accountants to discuss with client the benefits of keeping a mileage log. The accountants can then amend by journal.
He won't sell the car to the company as he is also a director of another company which he also uses the car for business jouneys.
I'll design a mileage log for him which hopefully will prompt him to use it.
Is it right that he still must provide the Fuel receipts for VAT purposes, even though the VAT would be reclaimed on the fuel element of the mileage allowance?
Re Mileage log - no need to design one. use the one I posted for free.... it does everything.
If he is also uses the car on other company business then surely he would be better of doing a mileage claim for each...?
Your client could be better of if he did it the correct way - posting the expenses to the P&L and not claiming the VAT is wrong.
The accountants will more than likely reallocate the petrol to his loan account and put through a mileage adjustment (doubt they will claim the appropriate VAT back..)
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Thanks for the replies. Client is adamant he wants the fuel receipts posting as motor expenses. I think what I will do is post the fuel to motor expenses but not reclaim any VAT. I'll put a note on the records for the accountants to discuss with client the benefits of keeping a mileage log. The accountants can then amend by journal.
He won't sell the car to the company as he is also a director of another company which he also uses the car for business jouneys.
I'll design a mileage log for him which hopefully will prompt him to use it.
Is it right that he still must provide the Fuel receipts for VAT purposes, even though the VAT would be reclaimed on the fuel element of the mileage allowance?
Thanks again.
This is where you as a bookkeeper need to be stronger with your client. I come across this a lot where someone says the client is adamant etc. He is paying you to provide a professional service and to advise him accordingly. Don't be afraid to tell him that he is wrong!
I know of one such incident where a client refused to VAT register after exceeding limits, bookkeeper agreed, carried on working for the client. HMRC caught up with them and client denied all knowledge and reported the bookkeeper to their professional body.
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Thanks for the replies. Client is adamant he wants the fuel receipts posting as motor expenses. I think what I will do is post the fuel to motor expenses but not reclaim any VAT. I'll put a note on the records for the accountants to discuss with client the benefits of keeping a mileage log. The accountants can then amend by journal.
He won't sell the car to the company as he is also a director of another company which he also uses the car for business jouneys.
I'll design a mileage log for him which hopefully will prompt him to use it.
Is it right that he still must provide the Fuel receipts for VAT purposes, even though the VAT would be reclaimed on the fuel element of the mileage allowance?
Thanks again.
This is where you as a bookkeeper need to be stronger with your client. I come across this a lot where someone says the client is adamant etc. He is paying you to provide a professional service and to advise him accordingly. Don't be afraid to tell him that he is wrong!
I know of one such incident where a client refused to VAT register after exceeding limits, bookkeeper agreed, carried on working for the client. HMRC caught up with them and client denied all knowledge and reported the bookkeeper to their professional body.
Charming! Clients can be so nice sometimes!
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Responses are my opinion based on the information provided. All information should be thoroughly checked before being relied on.
Yes you are correct that he needs to retain the fuel receipts that show enough VAT to cover the VAT being reclaimed on the Mileage. I find its best to attach the receipts to the relevant mileage claim, for example one claim a month with that months receipts attached.
Hi Merlion,
I think it'a a great way of dealing with Mileage Log and VAT.
