Reclaiming VAT on road fuel

Shirl

Can anyone help please regarding accounting for road fuel paid by an employee for business travel? As I understand it, the company can treat this road fuel as input VAT providing that it re-imburses the employee in full either at full cost or via mileage allowance. If the company does this using a mileage allowance, then when accounting for the transaction in the profit & loss account would the VAT (which can be reclaimed) be shown against the mileage allowance expense? I am confused with this one because if I show the VAT then in one particular instance where I need to accrue the mileage allowance expenses, it's the net amount which is accrued (and subsequently reversed in the profit & loss) but it will be the gross amount actually paid to the employee in the following year. So profit and loss is "understated" in the current year with the hit being taken the year after. Is that normal accounting practice in this type of case?

Shirl

aatmember

Hello - try this......

Hi Ya

It sounds to me a little confusing. I think you may be getting confused with two possible senarios;

Yes you can reimburse the employee for the fuel he paid for his business travel, thus let’s say the employee filled the car up with £47.00 = £40.00 + £7.00 VAT… if you were accruing this value you would ignore the VAT aspect since an accruals is only a provision. (Dr Motor 40.00; Cr Accruals 40.00)

Or

You can, if your company works in this manner reimburse the employee via the Fixed Profit Car Scheme by reimbursing the employee with a fixed rate (max of .40p Tax Free) X business miles he has travelled (EG: 225 miles @ .40p = £90.00). If your company selects this option then you should totally disregard the fact that the employee has put in any fuel in the vehicle and ignore the VAT aspect too. Again, if you’re providing accruals you would just accrue (Dr Motor 90.00, Cr Accruals 90.00).

Does that make sense?

Regards

qwerty

Hi Shirl

If you re-imburse using a mileage allowance under the FPCS you should account for the transaction as follows.

Assuming 500 miles in 1800cc petrol car at 40p per mile = £200 reimbursed to employee.

Fuel element = 500 miles X 14p = £70.00
VAT on fuel element = £70.00 X 7/47 = £10.42 (assuming employee can provide VAT receipts covering expenditure on fuel totalling at least £70).

The net cost to the company would be £(200 - 10.42) = £189.58, so you would
Dr Travel £189.58
Cr Accruals £189.58

Then at the beginning of the next period you would reverse this transaction:
Dr Accruals £189.58
Cr Travel £189.58

You would then pay the mileage allowance to the employee, recorded as:
Dr Travel £189.58
Dr VAT £10.42
Cr Bank/cash £200.00

Therefore, in the second period the net expense charged to Travel is £Nil.

Hope this helps

Qwerty

aatmember

Maybe you could help with this senario Qwerty

Sorry to butt in on your thread Shirl, but I wasn’t aware of the VAT aspect on the FPCS….

So Qwerty.... am i correct with the following?

1st August 2010 my Director passed me his mileage record sheet detailing the business miles he has travelled in July 2010 in his private 2.0 ltr diesel car. The mileage sheet will only shows the business miles travelled, a total of 4,545. I paid him £1,261.20 under the FPCS (833 miles at 40p and 3,712 miles at 25p).

Up until now this is what I would have posted on the company accounts, Dr Motor Expenses - £1,261.20, Cr Bank - £1,261.20.

So what you are saying, I could, as the company is VAT registered carry out the following calculation and postings:

4,545 x 11p = £499.95
7/47 x £499.95 = £74.46

Therefore, I could reclaim £74.46 as input VAT, so

DR CR
Motor Expenses £1,186.74
VAT £74.46
Bank £1,261.20

Is this correct? Also, am I correct in saying that the Director must submit his VAT receipts with him mileage sheet for the month covering the fuel that he has put in his car? If he doesn’t then presumable I cannot recover the element of input VAT?

qwerty

Hi

Yes that is correct. To be able to recover the VAT, the person claiming the mileage allowance should submit receipts to cover the fuel element, so £499.95 in your example, and these receipts should be dated on or before the date(s) on which the travel takes place.

aatmember

Out of interest then.......

Ok many thanks for that.

Out of interest from what i understand the 11p per business mile relates to the fuel aspect of the 40p with regards to the FPCS (although I did call the revenue to confirm this, and there response was “it was parliament that set the rates and didn’t inform the revenue of a split”!!!!!

What would happen then if I just use the 10,000 allowance as I went along – at the point of reaching the 25p bracket would it still be a case of using the 11p per business mile?

Regards

qwerty

Yes that is correct.

The reason for the drop from 40p to 25p is that the allowance is to cover all costs of running a car. These costs include fixed and variable costs.

Fixed costs include the cost of purchasing the car, road tax and insurance (generally). These costs will stay the same no matter how many mile you drive. So, what the allowance does is assume that once 10,000 miles have been reach, the allowance given covers all of the fixed costs for the year as well as the variable costs for those 10,000 miles.

If you do business miles above this, you are not incurring any more fixed costs, but you still have the variable costs such as fuel and repairs. These costs are assumed to increase in proportion to the number of miles travelled. Because of this, the fuel element is always assumed to be the same, and therefore the 11p will still be used when claiming 25p per mile.

aatmember

Thanks

Ok...that does make sense.

Thanks for that.

Shirl

Many thanks to everyone, that has helped me alot, rather confusing at times but I think I know what I am doing now.

Shirl