I'm trying to get my head round how to deal with claiming back VAT on fuel for a limited company, VAT registered BUT below the VAT threshold, small amount of business travel all of which is done in the Director's personal car.
If your business pays for road fuel, you can deal with the VAT charged on the fuel in one of four ways:
Reclaim all of the VAT. You must use the fuel only for business purposes.
Reclaim all of the VAT and pay the appropriate fuel scale charge - this is a way of accounting for output tax on fuel that your business buys but that's then used for private motoring.
Reclaim only the VAT that relates to fuel used for business mileage. You'll need to keep detailed records of your business and private mileage.
Not reclaim any VAT. This can be a useful option if your mileage is low and also if you use the fuel for both business and private motoring. If you choose this option you must apply it to all vehicles including commercial vehicles.
I can see that the first and second options are not appropriate. So it's either the third or the fourth.
My question is, why would anyone want to take the fourth option? Why would it be "useful" to claim nothing rather than something? Is it just that the work necessary to calculate the business mileage is not worth the effort for the likely amount that could be claimed? Or is there something I'm missing?
The only way I see the last option as useful has nothing to do with fuel, more to do with deciding to register for VAT or not. Maybe someone else who's dealt with this more will have a better answer...
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Please correct me if I'm wrong... I am only human sucking up knowledge... Sometimes bits leak out!
If the vehicle has a CO2 band of say 190 you would apply a Fuel Scale Charge of £147.00 gross ie £24.50 Vat would be repaid to HMRC but if your fuel account was only £150 a month for that particular vehicle, you would be worse off as you would only being claiming £17.50 of input VAT. This can be the case especially where there are several vehicles all doing low mileage. Hence Option 4.
If the vehicle has a CO2 band of say 190 you would apply a Fuel Scale Charge of £147.00 gross ie £24.50 Vat would be repaid to HMRC but if your fuel account was only £150 a month for that particular vehicle, you would be worse off as you would only being claiming £17.50 of input VAT. This can be the case especially where there are several vehicles all doing low mileage. Hence Option 4.
That looks like an argument against option 2, but not an argument against option 3. (unless I'm misunderstanding things fuel scale charges don't apply to option 3)
Perhaps the thought is that if the mileage is low the administrative effort in keeping proper records of business mileage vs private mileage outweighs the small amount of VAT that can be reclaimed. I probably do 1-200 miles on business/year and I couldn't be bothered to reclaim the VAT for that.
What seems really odd about those rules is the apparent stricture in the last sentence of option 4 that the moment you've decided to not reclaim VAT for one vehicle (because the admin wouldn't be worth it for that vehicle) you cannot reclaim it for any vehicle. That rule just seems in place to annoy!
-- Edited by Tom McClelland on Thursday 20th of October 2011 10:33:38 AM
Tom McClelland, you are right, I had ruled out the scale charge option entirely - I was just unable to see why anyone would choose Option 4 (i.e. not claiming any VAT) over Option 3 (detailed mileage records). The consensus seems to be that the reason must be to avoid paperwork and record keeping.
Because only one vehicle is involved in this case, I had not spotted the oddity that you mentioned, " the moment you've decided to not reclaim VAT for one vehicle (because the admin wouldn't be worth it for that vehicle) you cannot reclaim it for any vehicle. "
That does seem harsh. The only justification I can think of is that if people were to submit VAT claims under several different calculation schemes for several different vehicles so many errors would result that neither those submitting nor HMRC can keep track of them. Perhaps there would also be opportunities for fraud hidden in all the detail. That's just my guess as to the reason. Or perhaps they just felt like being evil today!
-- Edited by chatcat on Saturday 22nd of October 2011 11:41:29 AM
