Does your business reclaim VAT on fuel for private motoring? If you do, HMRC will insist that you pay a “VAT fuel scale charge". This charge is based on the co2 emissions of the car and not the actual amount of private usage.
The scale charge must be added to the output tax on the VAT return, i.e. for CO2 emissions band from 130-134 the annual output is £747.00. This consists of the basic charge of £622.50, plus £124.50 VAT.
The VAT fuel scale charge is £175 per quarter on a car in the CO2 band 125-129. This will cost you £29.17 per quarter in VAT, so, to make it worthwhile you need to spend at least £145.83 on fuel per quarter – roughly £50 per month.
If the business pays for private fuel, then the scale charges will apply subject to “opting out" (discussed later). If you have not borne the cost of private motoring, then the HMRC will expect you to be able to prove this, by having available detailed mileage records.
Driver repays: What if the company car drivers repay you in full for the fuel used privately?
No scale charges are due, however, the business will then have made a taxable supply of fuel equivalent to the amount which the driver pays, and VAT will be due. For example, if the company car driver uses 10 litres a month, and pays you £1.10 per litre, the business will have to account for VAT on £11.10 (10 litres x £1.10p), equivalent to £2.22. But you could instead consider opting out.Opting outOpt out:
Scale charge rates do not apply to commercial vehicles and would not apply to cars for which no private fuel is provided. You may opt out of the scale charge system altogether by concession
Tip:If your total input tax recovery on fuel is less than the scale charge, opt out of the scale charge. Remember, if you opt out, you must inform HMRC in writing.