VAT on Fuel

VAT Reclaim on Business Fuel
Assessing the impact of the 6th VAT Directive

The background

The European Commission argued that unless fuel was being
charged directly to the business, for example by a business
charge card or credit card, the supply was being made to the
employee and, consequently, the related input VAT was not
recoverable by the employer.

In addition, The European Commission was concerned that UK businesses were recovering input VAT which related to private or non- business mileage undertaken by employees.

The outcome of the case was that the European Court of Justice (ECJ) upheld The European Commissions view.

What happens now?

With effect from 1st January 2006 a new statutory instrument has been published.

A business is eligible for input (VAT) recovery on petrol expenses paid as a mileage allowance or where the actual cost of petrol is reimbursed, they must hold the VAT invoice and it should be in the employers’ name.

Where the value of the fuel purchased is under £250.00, the receipt or credit card voucher must contain the following information as valid evidence used to support input tax recovery:

• Name, address & VAT number of supplier
• The time of supply
• A description which identifies the goods or services supplied
• The total amount payable, including the VAT
• The VAT rate

In brief

Where all of the road fuel is used for the purpose of the employer’s business, the
employer may reimburse the cost of all the road fuel to its employee and recover all
of the input VAT therein.
Where the road fuel is only partially used for the purposes of the employer’s business, the employer has the following options:

• Reimburse only the cost of the fuel which was used for the purpose of the employer’s business, determined by reference to the total distance travelled or the cylinder capacity of the vehicle, and recover the input VAT on the business use element only.

• Reimburse the full cost of the road fuel, recover all of the related input VAT and account for output VAT (using the fuel scale charge) to reflect private use element.

Xenon Cash Allowances' solution

Since 2002, we have been providing comprehensive mileage capture, P11d reporting and fuel based VAT reporting for CAS, ECOS and Company Car Fleets.

The solution is underpinned by a web based, offline, digital pen and voicemail system to ensure accurate mileage capture for both business and personal use.

It is supported by a driver call centre and helpdesk to ensure mileage is entered in a timely manner. The solution allows individual business trips to be recorded, and captures total private mileage.

The solution includes:

• Fuel spend audit
• Odometer reading audit
• Pence per mile analysis
• VAT recovery
• Bespoke reporting
• Exception reporting Reimburse only the cost of the fuel.