In this edition

Company car fuel scales overhaul

The basis of the VAT car fuel scale charge has changed. For VAT return periods starting on or after 1 May 2007, businesses must use new scales based on a car’s carbon dioxide (CO₂) emissions. Previously, the charge was based on engine size.

Businesses have to account for VAT on the scale charge if they reclaim input tax on fuel used for private motoring by employees or a proprietor. For a three-month return period, the output VAT payable will now range from £27.11 for a car with CO₂ emissions not exceeding 140 grams per kilometre, to £63.45 for emissions of 240 g/km or more.

To avoid employees being liable to income tax on the benefit, many businesses now do not provide fuel for private motoring in company cars. Instead they just reimburse the employee’s fuel costs for business journeys. HM Revenue & Customs accepts there is no liability to tax or national insurance where employers pay for business mileage at no more than the advisory rates that it publishes. These are still based on a car’s engine size rather than its CO₂ emissions because they are intended to reflect the actual cost of motoring.

The scale was last revised – downwards – from 1 February 2007, although petrol prices have gone back up since then and a further change may be on the cards.

This newsletter is for general information only and is not intended to be advice to any specific person. You are recommended to seek competent professional advice before taking or refraining from taking any action on the basis of the contents of this publication. The newsletter represents our understanding of law and HM Revenue & Customs practice as at May 2007.

Return to Home Page