The purpose of this Brief is to remind taxpayers that the partial exemption concession on Road Fuel Scale Charges (RFSCs) was withdrawn with effect from 1 January 2014. Taxpayers who previously used the concession should have taken action by now if they are to continue to achieve a fair result after that date

RFSCs were an optional way of calculating VAT on deemed supplies created when taxpayers allow business road fuel to be used for private journeys. They avoided the need to keep detailed mileage records to accurately calculate private usage. However, where taxpayers were partly exempt and VAT on road fuel was treated as residual, declaring RFSCs lead to unfair results. This was because output tax was declared on the full value of private use fuel whereas input tax was only claimable in part on that fuel according to the taxpayer’s partial exemption recovery rate.

The old concession corrected this by allowing the RFSCs to be reduced by applying the partial exemption recovery rate to them. This meant that the output tax declared on private use fuel was consistent with the actual input tax deduction on that fuel. For various reasons, the concession was withdrawn with effect from 1 January 2014.

Therefore, partly exempt businesses who wish to continue to use RFSCs from 1 January 2014 should now be accounting for the full amount of RFSCs applicable to their vehicles. Input tax on road fuel continues to be recoverable in accordance with the business’s agreed partial exemption method.

HMRC have proposed a ‘fuel sector’ formula that gives a similar overall VAT result to that realised under the old concession. This is outlined in more detail in the brief, which is available on the HMRC website, however there is scope for businesses to propose their own alternative.

The Brief is reproduced in full here.