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HMRC internal manual

Business Income Manual

Value Added Tax: private motoring

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 the Income Tax 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 carbon dioxide emissions 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.

Where the person supplied with the fuel is a sole proprietor or a partner an adjustment will be required in calculating the trade profits. 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 by virtue of S34(1) Income Tax (Trading and Other Income) Act 2005 and should be added back.