HM Revenue and Customs Brief 33/13
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Issued 4 November 2013
VAT: withdrawal of partial exemption concession in relation
to Road Fuel Scale Charges (RFSCs) - reminder of withdrawal and need to
Purpose of this Brief
The purpose of this Brief is to remind taxpayers that the
partial exemption concession on Road Fuel Scale Charges (RFSCs) will be
withdrawn with effect from 1 January 2014. Taxpayers who currently use
the concession need to take action if they are to continue to achieve a
fair result following withdrawal.
Who should read this brief
Partly exempt taxpayers who use the RFSCs and the related
partial exemption concession.
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 taxpayers are partly exempt and VAT on road fuel is
treated as residual declaring RFSCs can lead to unfair results. This is
because output tax will be declared on the full value of private use
fuel whereas input tax will only be claimable in part on that fuel
according to the taxpayer's partial exemption recovery rate.
The concession corrects this unfairness by allowing the RFSCs
to be reduced by applying the partial exemption recovery rate to them.
This means that the output tax declared on private use fuel is
consistent with the actual input tax deduction on that fuel. However
HMRC needs to either withdraw concessions or bring them into law and
this concession cannot be legislated.
Consultation and withdrawal of concession
HMRC consulted on correcting errors in RFSCs and bringing
associated concessions into law in summer 2012. The consultation set
out that this concession would need to be withdrawn and asked whether
any particular transitional arrangements would be needed. On 11
December 2012 HMRC published the summary of responses to that
consultation, including its conclusions regarding this concession.
The summary announced that HMRC agreed that a long lead in
time to the withdrawal was appropriate and that the concession was
therefore to be withdrawn with effect from 1 January 2014.
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. Input tax on road fuel will continue to
be recoverable in accordance with the business's agreed partial
While HMRC consider that the following 'fuel sector' formula
will give a similar overall VAT result to that realised under the
concession, businesses may propose their own alternative.
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
VAT on scale charge due - £300.00
VAT incurred on road fuel - £630.00
PE recovery rate 40%
300 + ((630 - 300) x 40%) =
300 + (330 x 40%) =
300 + (132.00) = £432.00 input tax recovery.
The effect of the suggested formula is consistent with the
concession that is being withdrawn.
If as a result of the withdrawal of this concession or for any
other reason businesses do consider that their current Partial
Exemption Method will not give a fair and reasonable recovery of input
tax they should contact HMRC requesting a new method. Until formal
approval is granted businesses should not adopt this formula or make
any other change to their partial exemption calculation method.
Along with any new method proposal businesses need to submit a
declaration that the proposed method is fair and reasonable. The
declaration needs to apply to the whole method not just the fuel
sector. See Public Notice 706 Partial exemption for more information on
Another option to ensure a fair and reasonable recovery of VAT
following the withdrawal of the concession that does not require a new
Partial Exemption Method 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. No deemed supply would arise and so the RFSC
would not apply.
Alternatively, 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.
About the Author
© Crown Copyright 2013.
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for educational / informational purposes only. Article reproduced by
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Article Published/Sorted/Amended on Scopulus 2013-11-14 10:15:29 in Tax Articles