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Disagreement re sole trader

Have a sole trader who is vat registered.

Has a company van used 100% business.  To keep the mileage on the van down, and in line with the contract he uses his car as well for business.

Car is on a HP.  If we put the car through the business can you choose to:

A. put petrol re car to drawings and claim vat back on the mileage only rate. (i have made sure he keeps a mileage log)

B. fuel through business and claim vat back and have a fuel scale charge.

I say you have a choice, and once made you have to stick with it.. A N other is saying as Vat reg, it has to be option B.

Can anyone confirm. 

Replies

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You've pretty much got it

Where a VAT registered person (the legal form of the VAT person - individual, partnership, company - doesn't matter) purchases fuel for a vehicle (and it doesn't matter who owns the vehicle) of which there is private use, there are essentially 4 options:

Don't recover any input VAT on the fuel.Recover all input VAT and account for output VAT based on a scale charge.Only recover input VAT on the fuel used for business.Recover all input VAT and charge the user of the private fuel at least its cost and account for VAT thereon.

Option 3 is proximate to your option A, assuming you intend to use HMRC's fuel only rates.  You will obviously need relevant receipts for any input VAT recovery.

Provided that there is some business use of the vehicle and the supply is made to the registered person, you can recover all input VAT on repairs/servicing etc.

There's no particular need to take the private fuel element to drawings.  If you're putting other costs of the car through the books, you may find it easier to simply make an annual private use adjustment for income tax purposes.

See http://www.hmrc.gov.uk/vat/managing/reclaiming/motoring.htm#6

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An odd question:

"purchases fuel for a vehicle (and it doesn't matter who owns the vehicle)"

Does that include cars not in any way, shape or form, owned by the company?  So an employees private car?  i.e. you give them petrol costs rather than 40p/mile.

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Yes

That's exactly what the legislation says.  See here: http://www.legislation.gov.uk/ukpga/1994/23/section/56.

The mileage allowance is a different issue as, technically, the supply of fuel is to the employee, but there are regulations that deem the supply to have been to the employer to the extent that it was used for business purposes, is the subject of a mileage claim and supported by a relevant receipt.

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Scale rates

The scale rates are normally work out better for high mileage drivers although there is little difference between the 2 methods in terms of net VAT reclaimable. If your client does very low mileage in the car he would be slightly better off with the pro-rata calculation although that means keeping a log of total mileage, not just the business element.

The scale rates tend to be less attractive for diesel cars too as they are the same for all cars, even though diesels cost less per mile in fuel costs (you tend to get about 30% more mileage per litre in them).

Chris

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Approved mileage rates

Presumably your A N Other is referring to the use of Approved Mileage Rates by a self employed person in their accounts claim for tax, not just the VAT aspect.  Is it not still the case that use of the mileage rates in a P+L (as opposed to the actual expenses incurred) is restricted to businesses with turnover below the VAT threshold?

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