VATease VAT Newsflash December 2005
Since issuing our December VAT Newsletter and the Pre-Budget Report Newsflash there have been some additional developments from HM Revenue & Customs that merit immediate reporting.
VAT on Fuel purchased by Employees on Employer's behalf.
One of the questions VATease is asked most often is "What is happening to the right to deduct VAT on mileage claims paid to employees?" We have promised many of our clients and newsletter subscribers that we would keep them informed as soon as HMRC made an announcement. Finally, this month, HMRC have announced some good news.
Previously HMRC has allowed businesses that pay a mileage rate to their employees to claim VAT on the fuel element of that payment, currently deemed to be between 7p and 16p per mile. In March 2005 the ECJ rules that this was illegal because the fuel was not supplied to the business and the business would not hold a valid receipt.
With effect from 1 January 2006 new legislation is to be introduced that HMRC believes allows businesses to continue to recover VAT on these payments but meets the requirements of EC Legislation.
This new legislation makes it clear that VAT can only be claimed on mileage claims that are for business purposes. It also requires the employer to hold a valid VAT invoice for the purchase of the fuel.
In practice this should mean that very little changes to the process of reclaiming the VAT except that an invoice must be obtained from employees together with the mileage claim. It is unclear whether receipts must be obtained from employees for all fuel purchased by them, all fuel for which a mileage claim is paid by the employer or just sufficient receipts to cover the amount of the mileage claim on which VAT is claimed but we expect this to be clarified in the near future.
Upper threshold limit on Annual Accounting and Cash Accounting
One change in the Pre-Budget report that didn't appear in any of the documentation issued by HMRC at the time was an increase in the upper limit of the Annual Accounting Scheme from £660,000 to £1,350,000.
HMRC are also requesting a derogation from the European Commission to increase the upper limit for the Cash Accounting Scheme to £1,350,000.
Merry Christmas & a Happy New Year
VATease would like to take this opportunity to wish you a very Happy Christmas and a Prosperous New Year. We are not sending Christmas cards this year but rather choosing to make a donation to the NSPCC and the Alzheimer's Society, charities that have been very close to our hearts this year.
We would remind you that VATease's offices are closed between Christmas and New Year. A contact number will be available from our answer machine for any urgent queries.
If you require further information please contact us on 0121 778 4299.
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