I have a client who is in the business of Plant equipment hire.
The company buys diesel in bulk in order to refuel the equipment once returned from hire. The customer is then charged, via invoice, for the amount of diesel needed to refuel to the original level of when they hired it (much like a hire car).
When the company buys the diesel they are charged 5% VAT on orders less than 2300 litres and 20% on orders over 2300 litres. My question is should they be charging the customer 5% VAT or 20% VAT on the diesel (or maybe not charging VAT at all?).
Sorry for the late reply, you posted on a day whilst I was otherwise engaged with another post that was getting a little out of hand.
less than 2300 litres is classed as domestic oil so 5%, more than 2300 litres is commercial usage so 20%
However, I thought that these rates were only applicable to red diesel (intended for heating systems)???
Anyway, back to the question. This is a commercial transaction rather than a supply of heating oil and the end client should be charged based on a retail sale of the Diesel so 20%.
hth,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Just to clarify then, the customer should be charged 20% VAT on the refuelling diesel even if the company only ever buy the diesel in orders of 2300 litres or less (thereby being charged 5% VAT)?
This means that the company will be profitting from the purchase of the diesel? Is that OK?
The company is simply collecting money on behalf of HMRC.
Everything that they make will be passed on less the cost to them.
An example
Cost £1000 @ 5% = VAT £50
Sale £1500 @ 20% = VAT £300
HMRC gets £250 from your company and £50 from the company that sold them the Diesel in the first place.
The company makes nothing on the VAT and only makes the difference in any markup on their selling price over purchase cost.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
Some business's (i've looked this up and still can't fathom whether it is business',businesses, or business's) would think they have made a good profit from that lol.
I get tired of people saying, arghh my VAT is due next week, I'm always telling em "well you have charged it so you must have the money somewhere"
They haven't, they took the kids to Disneyland Paris or summat.
I always advise clients to have a dedicated short term deposit account to hold their VAT.
Nowdays they don't get much by way of interest even on quite large sums but it's still better than a hit round the head with a wet fish.
Also of course it means that in their minds the VAT is ring fenced.
kind regards,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
You must have heard someone say "i've got to find x amount of money to pay the VAT" at some point though.
I personally, would keep it in a separate account. 99% of our business is labour only now (something i introduced when we downsized a few years back) and i use the customers accounts with their suppliers to order parts. Saves me shelling out thousands in parts and waiting 60 days to be paid, we de-registered for VAT as our customers claim it back themselves and if anyone goes bump i'm out of pocket by a few hours labour instead of a few hours labour and 600 quid + Vat for a control unit.
It also makes business simpler.
Gone are the days of making a pretty penny by supplying parts, there was never anything to be made dealing with trade and as most of our customers are a lot larger than ourselves they are offered better discounts. Even retail customers are shopping on ebay for parts.
The added bonus of retail supplying their own parts is if anything goes wrong with the part, we get to charge again, whereas if we had supplied the part it is the norm for us to fix the job again for nothing.
The only problem i have at the moment is every Tom, Dick and Harry self diagnosing the fault using the internet, then coming to me and telling me how to do my job.
As the charge on to the end user is going to be less than 2300 litres, I would have said the charge for refueling would incur 5% VAT. It is not a road fuel, it is an heavy oil. Red diesel is usually used in agriculteral vehicles, and plant, and does not have the same excise duties applied as DERV does (an abbrieviation for Deisel Engined Road Vehicles).
Reading that link I would have gone with section 10.3 Bill which seems to back up your arguement for retailers charging the lower rate... It just doesn't seem right though that one could be charging VAT at 5% where you have paid 20% on it meaning that you could end up putting in a claim return.
Oh well, looks like another one to add to my list of tax anomalies.
cheers,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
The site just wouldn't be the same without our (and now Tim as wells) little tax debates Bill.
I still think that the king of anomalies is the one man limited company being able to charge mileage (45p/25p) regardless of company turnover but the sole trader being restricted to turnover equivalent to VAT registration on change of vehicle.
All the best,
Shaun.
__________________
Shaun
Responses are not meant as a substitute for professional advice. Answers are intended as outline only the advice of a qualified professional with access to all relevant information should be sought before acting on any response given.
I think the point is that the company hires out machinery, filling it with diesel is a service they provide to the customer, therefore they charge the customer 20% VAT. The lower rate would only be used if they were in the business of selling diesel.
I see it differently. The hire company are not charging for the service of refilling the tank, they are charging the hirer retrospectively for the fuel supplied at the time of hire and consumed during the course of the hire.
If the customer takes plant/ machinery on hire with a full tank of fuel, then return it with half a tank, the company refill the tank and charge the hirer directly the amount they have to use to top up the tank. Effectively, I would say they are a fuel reseller.
Hello
Well that certainly raised a debate!
As you all couldn't make up your minds I thought I would ask the other 'experts' and called the HMRC. I know a novel idea but, after putting me on hold and conferring with some more 'experts' I have a conclusive response. :)
The HMRC have.... Wait for it...... Agreed with those on the side of 20%. They claim that as the red diesel is being sold as part of the plant hire equipment contract it should be 20%.
If the diesel was being sold on it's own it would be 5%.
So there you have it, the answer. Took a while to get there and I'm sure if the same question is asked next week the answer will be different but such is life.
Hope you all enjoyed the ride ;)
Kelly
