VAT on road fuel – the new flat rate option – UPDATE

We recently told you about changes to the VAT fuel scale charge for non-business journeys which take effect next month. There have now been further developments. What are they and how will they apply?

New road fuel rules

When we previously advised you about the VAT on road fuel the new rules were waiting for the official stamp of approval. This arrived late November. The Treasury confirmed that as from 1 February 2014 the VAT fuel scale charge will be scrapped. But, contrary to what we said last time, you will still have the option to use a new flat rate calculation.

Four options to reclaim

From next month, where a business pays for fuel used for private journeys made by a self-employed individual, business partner, director or employee it can adopt one of four ways to deal with the VAT on the cost. It can choose:

  1. Not to reclaim VAT on any fuel purchase.
  2. Reclaim VAT only on fuel used for business mileage.
  3. Reclaim all VAT and repay the VAT in respect of the private mileage.
  4. Reclaim all VAT on fuel and account for VAT using the new optional flat rate charge.

Mileage records

Using either Option 2 or 3 will mean you’ll have to keep precise mileage records which can be a bit of a chore. The trouble is HMRC will probably insist on seeing them during a VAT inspection. If you want to avoid the paperwork you’ll have to choose Option 1 and give up reclaiming VAT on fuel altogether of choose the new flat rate (Option 4), which in effect is the same as the old fuel scale charge. But before you plump for this it’s worth crunching the numbers to see what the consequences are.

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