Apply the fuel scale charge in FreeAgent

This article explains how to apply the fuel scale charge and how this is handled in FreeAgent. It also explains how to include the fuel scale charge for additional cars.

If your business is registered for VAT and buying fuel for a motor vehicle, the business is only allowed to reclaim VAT on fuel used for business purposes, not private.

However, if your business is a limited company and the car is a company car that’s available for private use, the business should include the full cost of running the car, including any fuel for private use, in its accounts. This also applies if you’re a sole trader or partner in a partnership that provides a car to an employee. The fuel for private use becomes a taxable benefit for the employee who’s using the car and your business has to be careful that it doesn’t reclaim VAT on fuel used for private purposes.

You can include the fuel scale charge by applying a fuel scale charge to your VAT return to increase the amount of VAT paid to HMRC. Alternatively, you can reduce the amount of VAT you reclaim on fuel transactions to remove any reclaim on private fuel. If you’re unsure which option is best for your business, please ask your accountant.

Applying a fuel scale charge to your VAT return

To apply a fuel scale charge to your VAT return, navigate to the ‘Taxes’ tab at the top of the screen and choose ‘VAT’ from the drop-down menu.

Select the relevant VAT return from the list.

Select 'Edit details' in the top-right.

In the ‘Fuel Scale Charge’ section, select the appropriate CO2 band for the car from the ‘CO2 Band’ drop-down menu. The amount of the fuel scale charge is set by HMRC and varies with the car’s CO2 emissions.

Select ‘Save Changes’ to complete the process. Find out more about how to edit your VAT return details.

How FreeAgent handles the fuel scale charge

FreeAgent will add the VAT element of the fuel scale charge to box 1 of your VAT return to increase the amount of VAT paid to HMRC to compensate for the VAT that’s been reclaimed on private fuel in box 4. The full fuel scale charge figure will also be added to box 6 of your VAT return.

You can view these figures by navigating to the ‘Full Report’ of your VAT return.

Including the fuel scale charge for additional cars

FreeAgent can only include the fuel scale charge figure for one car. Therefore, if your business has more than one car, you’ll need to create the following journal entries to include the VAT on the fuel scale charge for additional cars:

• Debit code ‘283 - Motor Expenses’ for the VAT amount of the fuel scale charge
• Credit code ‘819 - VAT Charged’ for the VAT amount of the fuel scale charge

You’ll also need to adjust box 6 of your VAT return by the full fuel scale charge amount.

If you’re unsure which journals are required or how much to adjust your VAT return by, please ask your accountant.

Reducing the amount of VAT you’re reclaiming when explaining bank transactions

Alternatively, if you don’t want to apply the fuel scale charge to your VAT return, you can reduce the amount of VAT you reclaim on fuel transactions to remove any reclaim on private fuel.

To do this, select the ‘Amount’ option from the ‘Including [X] VAT’ drop-down menu when you’re explaining bank transactions related to the cost of fuel. Enter the amount of VAT you’re allowed to reclaim for the business use of the car only. If you’re unsure how much VAT you’re allowed to reclaim, please ask your accountant.

Repeat this process for each transaction related to the cost of fuel.