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HMRC internal manual

VAT Partial Exemption Guidance

Other Partial Exemption issues: petrol scale charges

Where a partly exempt business uses a vehicle for private motoring the input tax incurred on the petrol can be fully recovered provided the petrol scale charge is declared in the same way as a fully taxable business. In order to recover this input tax, the business and private motoring petrol 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.

For businesses that are unable to separate business and private motoring, the scale charge may be reduced to equal the percentage of input tax recoverable under the partial exemption method. This means, for example, that where only 80% of the input tax is recoverable, only 80% of the appropriate scale charge will be declared. When the annual adjustment is carried out, the scale charge must also be adjusted.

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