VAT: Fuel Scale Charge; new CO2 basis

This Revenue and Customs Brief announces changes to the VAT fuel scale charge. These changes will come in to effect on 1 May 2007 and businesses must use the new scales from the start of their first accounting period beginning on or after this date. We are announcing the change early to allow businesses time to familiarise themselves with the new charges and make any necessary IT system changes.

The existing VAT fuel scale charge, which is based on the engine size and fuel type of a car, will be replaced by a fuel scale charge based solely on the CO2 rating of a car. The new table, which mirrors that used for direct tax purposes, will have 21 bands with 5g/km increments. An outline of the bands is produced at Annex A.

The complete new table, which will be available following Budget 2007 as an amendment to Notice 700/64 Motoring Expenses, will provide business with the actual scale charge for a car within a particular band. Apart from the change to a CO2 basis, the system will operate in exactly the same way as the existing VAT fuel scale charge. We have provided an example with illustrative figures in Annex A.

In keeping with the existing fuel scale charge, the CO2 based system will be subject to an annual review to ensure that the charge reflects changes in fuel prices. The figures produced at Budget 2007 will have been reviewed and, as with the current system, will be extant for one year. This change is not intended as a revenue raising measure and the switch to a CO2 basis will be revenue neutral overall.

Many businesses will already be aware of the underlying concept of the CO2 based system from using direct tax schemes (company car tax and company car fuel benefit) as well as the new system for Vehicle Excise Duty. For businesses unaware of their CO2 rating, a number of publicly available websites provide details on vehicles’ official CO2 emission levels and we have included the details of a number of sites for ease of reference.

The Society of Motor Manufacturers and Traders – Comprehensive CO2 Database.

Vehicle Certification Agency – Current CO2 Database.

Vehicle Certification Agency – Historical CO2 Database

If you have any further queries, please contact the National Advice Service.

Annex A

Charge table: Quarterly Returns

CO2 em'mission, g/km	VAT Fuel Scale Charge	VAT on charge	Net amount
140 or under
145
150
155
160
165
170
175	£346.00*	£51.53*	£294.47*
180
185
190
195
200
205
210
215
220
225
230
235
240 or Over
*Notional figures for illustrative purposes only. The actual levels of new charges will be published at Budget 2007, and will reflect both the new structure and fuel prices at that time. The levels of the new charges will differ from those in the table above.

Example

Current Position

A business pays the current VAT fuel scale charge on a 2006 Vauxhall Vectra petrol 1.8i 4 door saloon; it pays a quarterly output tax charge of £51.53 and enters £294 in to the net outputs box on the return.

The CO2 rating for this vehicle is 175 g/km.

Following 1 May 2007 changes

The new fuel scale charge, which must be used from the start of your first accounting period beginning on or after 1 May 2007, can be found by looking along the band which covers 171 g/km – 175 g/km. In this illustrative example, the new quarterly output tax charge is £51.53 and again the business enters £294 in to the net outputs box on the return.

The new system will determine the fuel scale charge by CO2 rating alone and there will be no adjustments for fuel type. The exception will be for vehicles too old to have an official CO2 rating; these businesses will be assigned a set band in the new system based on engine capacity alone.

Issued 12 February 2007.