HM REVENUE & CUSTOMS has admitted it made a mistake in its approach to charging business VAT on some of the private fuel made available for private use, reports Taxationweb.
This, HMRC said, breaches EU law and could mean some businesses are overpaying VAT and the rules therefore must be changed.
Previously, HMRC has had businesses account for VAT at least to the extent of the road fuel scale charge in the absence of detailed mileage records to establish accurate liability, even when the company has charged a lower amount for the fuel available for private use. This has caused some businesses to pay more VAT than the element that would match with their actual charge for private use.
However, in a technical note issued yesterday, HMRC confirmed the current legislation contravenes the EU’s principal VAT directive.
It said: “A deemed supply cannot be imposed where consideration is paid. Under the provisions of the principal VAT directive, where a real supply exists no deemed supply can be imposed. Consequently, UK law is wrong to impose RFSCs where a taxpayer makes a real charge for road fuel but that charge is less than cost price.”
These changes, however, will not apply where businesses have not charged for private fuel use.
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