The EC has finally agreed the UK’s proposal to align the output VAT charge with the benefit in kind charge on the provision of private fuel assessable on the individual. The proposals and legislation were announced in the 2005 Budget and will be implemented from May 2007.

The output charge is payable by VAT registered businesses which allow their employees to claim all the fuel expenses on their company cars and reclaim VAT on the full amount of fuel purchased without making an adjustment for the for private use. The output charge is currently a maximum of £75.66 per quarter and may rise significantly for those cars which have the highest CO2 emissions.

We are still awaiting details of how the legislation will work in practice and we will keep you informed of developments.

Internet links: HMRC current rates