The partial exemption concession on Road Fuel Scale Charges (RFSCs) will be withdrawn with effect 1 January 2014.
HMRC has issued Brief 33/13 to remind taxpayers who currently use the concession to take action if they are to continue to achieve a fair result following withdrawal.
The withdrawal will impact businesses which are partially exempt for VAT and who pay employees for business mileage. When taxpayers allow business road fuel to be used for private journeys, there is a deemed supply on which VAT is chargeable. The concession corrects unfairness so that output tax declared on private use fuel is consistent with the actual input tax deduction on that fuel. However, the concession has to be withdrawn as it cannot be legislated.
Partly exempt businesses who wish to continue to use RFSCs from 1 January 2014 must account for the full amount of RFSCs applicable to their vehicles. HMRC has introduced a ‘fuel sector’ formula which will give a similar overall VAT result to that realised under the concession, but businesses may propose their own alternative together with a declaration that the proposed method is fair and reasonable.
There are two alternative courses of action. The first is to keep accurate mileage records that would allow apportionment of the input tax incurred on road fuel so that only the portion relating to business use is included in the partial exemption calculation, and the second is not to claim VAT on road fuel at all.