PE63500 - Other Partial Exemption issues: Road Fuel Scale Charges

Road Fuel Scale Charges (‘RFSCs’) are an optional way of calculating VAT on deemed supplies created when taxpayers allow business road fuel to be used for private journeys. They avoid the need to keep detailed mileage records to accurately calculate private usage.

Where a partly exempt business uses a vehicle for private motoring the input tax incurred on the fuel can be fully recovered provided the RFSC is declared, in the same way as a fully taxable business. In order to recover this input tax, the business and private motoring fuel expenses must be separated. The input tax in respect of any private motoring is fully recoverable. The input tax in respect of business motoring is recoverable to the extent that the vehicle involved is used to make taxable supplies.

Prior to 1 January 2014 a concession was available which allowed the RFSCs to be reduced by applying the partial exemption recovery rate to them. This meant that the output tax declared on private use fuel was consistent with the actual input tax deduction on that fuel. For example, where 80% of input tax was recoverable, 80% of the appropriate RFSC would be declared.

Since 1 January 2014, partly exempt businesses who wish to continue to use RFSCs must account for the full amount of RFSCs applicable to their vehicles. Input tax on road fuel will continue to be recoverable in accordance with the business’s agreed partial exemption method.

HMRC has published details of a suggested formula for a ‘fuel sector’ which may be adopted as part of an approved sectorised Partial Exemption Special Method. Alternative methods will also be considered.

The suggested formula to calculate the recoverable input tax on road fuel is as follows:

VAT on fuel scale charges + ((VAT charged on fuel purchased in the period - VAT on fuel scale charges) x PE recovery rate)

For example:

VAT on scale charge due - £300.00
VAT incurred on road fuel - £630.00
PE recovery rate 40%

Calculation =
300 + ((630 - 300) x 40%) =
300 + (330 x 40%) =
300 + (132.00) = £432.00 input tax recovery.

Alternatively, partly exempt businesses may choose to retain accurate mileage records to allow apportionment of input tax incurred on road fuel so that only the portion relating to business use is included in the partial exemption calculation. No deemed supply would arise and so the RFSC would not apply.

Where taxpayers have a very low partial exemption recovery rate they may prefer to claim no VAT on road fuel and also avoid the need to consider the RFSC.

When using an outputs-based method a business should include the full value (excluding VAT) of the scale charge within the partial exemption calculation.