In general, registered traders must account for VAT on fuel used
for private motoring in accordance with a standard scale charge
rather than by disallowing the input tax incurred on the fuel. This
system is not dissimilar to our own car fuel benefit charge on
employees (with the addition that it also applies to sole
proprietors and partners as well as directors and employees).
For each person supplied with fuel for private use a scale
charge is payable. The scale charges vary according to the size of
the vehicle used. VAT must be paid on the deemed supply of the
aggregate of the scale charges. The charge can be avoided if fuel
for private use is not funded by the business.
For Case I purposes, if the person supplied with the fuel is
a director or an employee, that person's liability to tax on
private fuel will be exhausted by the car fuel benefit charge and
no further adjustment is required. Where the person supplied with
the fuel is a sole proprietor or a partner an adjustment will be
required for Case I purposes. Only exceptionally will the amount of
the deemed taxable supply and therefore the amount of the
additional VAT be equal to that on fuel actually used for private
purposes.
The book keeping will generally be that the VAT on the deemed
taxable supply will be charged to motoring expenses with the contra
in the VAT account. With the exception of this amount of VAT,
unless the business is exempt, or makes partly exempt supplies (
BIM31535 and
BIM31540) all other items in the
motoring account will be net of VAT. As the business is making a
non-business supply, the charges are not allowable for Case I
purposes by virtue ICTA88/S74 (1)(a) and should be added back.
