I hope someone can help as I am having a mental block! I have a client who is a company director. He uses his own vehicle for company use, and charges the fuel for the vehicle to the company credit card. He has a directors loan account (2250) to which normal DLA items are posted, and a directors loan (car) account to which his monthly car allowance and the fuel expenses are posted. His previous bookkeeper posted all fuel receipts as T9 (outside scope of vat), but if the company is paying for the fuel, I am thinking this is a legitimate expense, so therefore should be T1 (20%) vat so it can be reclaimed....? However, I am now deliberating in my own mind whether his DLA car account is taxed at the end of the year, so therefore should be outside the scope of vat after all.
Gill
the exact treatment depends on how you want to deal with the VAT. HMRC PN 700-64, chapter 8 explains the different alternatives.
I would presume that he wants to use the fuel scale charge, so as not to maintain a detailed mileage record.
Therefore the fuel is posted to a cost account, input tax to VAT Control. Output tax on the scale charge goes to the VAT Control, and the net scale charge (I think) to DLA. (Tax and VAT rules are slightly different as to entitlement to deduction.)
Is it perhaps that the director wants to avoid a fuel benefit in kind, and so all motor costs go to his DLA, and then his accountant adjusts for mileage at the year end?
Hi Les, thanks for your reply, I don't believe the fuel scale charge is used in this case. I think it is more as Michelle suggests, that all motor costs go to his DLA (which they do), so I am confusing myself as to whether these transactions should be T9 (outside scope of vat) as per his expenses charged to his normal DLA, or if I should be inputting them showing the VAT ie T1 so the vat element is reclaimed by the company....
The VAT treatment of fuel should still be considered, as per the HMRC Notice. He can opt not to claim input tax, even if he is entitled to it. This would only be appropriate if the fuel scale charge outweighs the input tax on fuel purchased.
For other costs, VAT is deductible, subject to the usual rules, so you can use T1 on the purchase side. Also, where the expense is a proper business expense, it should belong in the P&L, not the DLA.
Thanks very much for your response - I will look into this and find out why we are posting to the DLA and not the p&l as you suggest. Thank you for your help!
