Is the council committing VAT fraud.
Discussion
Not sure if this is the right forum so Mods feel free to move it.
My wife works for the local council. Occasionally she has to use her own car for work and then submit an expenses claim form for the miles travelled. Recently when she put in a claim it was rejected and when she queried it, the person she spoke to explained that the finance department had changed their policy. They now want all staff submitting mileage claims to include petrol receipts with their claim.
When my wife queried this, she was told that the finance department now claim back the VAT on the fuel element of any staff mileage claim and therefore need Vat receipts for fuel submitted along with every claim.my wife queried this as any fuel she buys is usually for a mix of work and personal miles. She was told that was ok, as long as the fuel receipt was enough to cover the miles claimed, they would sort it out.
This sounds pretty dodgy to me, how can the council claim back VAT paid by someone else and even if it was legitimate, how can they possibly untangle the Vat paid on fuel from the total expenses paid back to staff? If this were a private company I wouldn't hesitate to call foul but I find it hard to believe that a local authority finance department would do something illegal. Any thoughts?
My wife works for the local council. Occasionally she has to use her own car for work and then submit an expenses claim form for the miles travelled. Recently when she put in a claim it was rejected and when she queried it, the person she spoke to explained that the finance department had changed their policy. They now want all staff submitting mileage claims to include petrol receipts with their claim.
When my wife queried this, she was told that the finance department now claim back the VAT on the fuel element of any staff mileage claim and therefore need Vat receipts for fuel submitted along with every claim.my wife queried this as any fuel she buys is usually for a mix of work and personal miles. She was told that was ok, as long as the fuel receipt was enough to cover the miles claimed, they would sort it out.
This sounds pretty dodgy to me, how can the council claim back VAT paid by someone else and even if it was legitimate, how can they possibly untangle the Vat paid on fuel from the total expenses paid back to staff? If this were a private company I wouldn't hesitate to call foul but I find it hard to believe that a local authority finance department would do something illegal. Any thoughts?
It is legitimate, but it hasn't been explained properly.
All businesses are allowed to reclaim the VAT element of mileage claims, that is, X number of miles at £0.xx per mile, times the allowed vat rate.
However, they need to 'prove' the fuel has been purchased, so they need supporting fuel receipts. They don't claim the vat off the receipts, just the mileage claimed.
It's not a new rule it's been around for years. It's something HMRC allow as an alternative to the slightly more draconian European rules I believe. Don't quote me on that though
.
All businesses are allowed to reclaim the VAT element of mileage claims, that is, X number of miles at £0.xx per mile, times the allowed vat rate.
However, they need to 'prove' the fuel has been purchased, so they need supporting fuel receipts. They don't claim the vat off the receipts, just the mileage claimed.
It's not a new rule it's been around for years. It's something HMRC allow as an alternative to the slightly more draconian European rules I believe. Don't quote me on that though
. The council is following the rules.
VAT registered employers can claim back the VAT on the fuel element of any mileage allowance they pay, but since a CJEU ruling a few years ago, need to have receipts to back up the fact the employee paid VAT on the fuel.
http://www.hmrc.gov.uk/manuals/vitmanual/vit55400....
VAT registered employers can claim back the VAT on the fuel element of any mileage allowance they pay, but since a CJEU ruling a few years ago, need to have receipts to back up the fact the employee paid VAT on the fuel.
http://www.hmrc.gov.uk/manuals/vitmanual/vit55400....
vanordinaire said:
Thanks both for your answers, if HMRC say it's ok, it must be , but it still looks a bit dodgy to me.
Why dodgy?The basic rule in VAT is that any entity that wishes to reclaim VAT on a cost it has incurred MUST be able to prove that there was a genuine transaction involved which contained VAT. The normal way to show this proof is to be able to show an original VAT invoice.
Eric Mc] said:
Why dodgy?
I understand the principal, but the employer didn't buy the fuel, has no way of telling how much of the fuel was bought for business purposes, the receipt isn't linked to any vehicle, they have no idea of the fuel consumption of the vehicle, and what if the employee didn't keep the receipt, is the employer within their rights to withhold payment?vanordinaire said:
I understand the principal, but the employer didn't buy the fuel,
has no way of telling how much of the fuel was bought for business purposes, the receipt isn't linked to any vehicle, they have no idea of the fuel consumption of the vehicle, and what if the employee didn't keep the receipt, is the employer within their rights to withhold payment?
The employer doesn't reclaim the total VAT on the fuel receipt. he only reclaims the VAT element of the fuel relating to the business mileage claimed. For example - if employee claims 200 business miles and Employer reimburses @45ppm, the fuel element is 10ppm and the VAt reclaimed will be 1.7ppmhas no way of telling how much of the fuel was bought for business purposes, the receipt isn't linked to any vehicle, they have no idea of the fuel consumption of the vehicle, and what if the employee didn't keep the receipt, is the employer within their rights to withhold payment?
Fuel consumption is irrelevant, the reimbursement rate is 45ppm
When claiming it is the Claimant who is asserting that he/she has done X business miles in his Ford Fiesta (reg number A123 XYZ) so, if there is any fraud, it's the claimant doing it, not the Council.
vanordinaire said:
Eric Mc] said:
Why dodgy?
I understand the principal, but the employer didn't buy the fuel, has no way of telling how much of the fuel was bought for business purposes, the receipt isn't linked to any vehicle, they have no idea of the fuel consumption of the vehicle, and what if the employee didn't keep the receipt, is the employer within their rights to withhold payment?So, if an employee has driven 200 legitimate business related miles in (say) the month, they will submit their legitimate mileage claim to their employer for 200 miles at whatever the mileage rate given by the employer is. Say, as an example, it is 30p per mile.
200 miles at 30p per mile gives a mileage claim for the employee of £60.00, The employer pays the £60 to the employee.
The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
However, this is what HMRC has adopted as the correct procedure.
It all stems from an EU VAT case dating back over 10 years involving the Dutch VAT treatment of fuel claims. Back then, Holland, like the UK, allowed Input VAT to be reclaimed by businesses on mileage claims by employees WITHOUT the need for a VAT invoice to be retained as evidence. Brussels ruled against this practice and HMRC decided they had better change before they too ended up before the Brussels VAT beak.
Countdown said:
vanordinaire said:
I understand the principal, but the employer didn't buy the fuel,
has no way of telling how much of the fuel was bought for business purposes, the receipt isn't linked to any vehicle, they have no idea of the fuel consumption of the vehicle, and what if the employee didn't keep the receipt, is the employer within their rights to withhold payment?
The employer doesn't reclaim the total VAT on the fuel receipt. he only reclaims the VAT element of the fuel relating to the business mileage claimed. For example - if employee claims 200 business miles and Employer reimburses @45ppm, the fuel element is 10ppm and the VAt reclaimed will be 1.7ppmhas no way of telling how much of the fuel was bought for business purposes, the receipt isn't linked to any vehicle, they have no idea of the fuel consumption of the vehicle, and what if the employee didn't keep the receipt, is the employer within their rights to withhold payment?
Fuel consumption is irrelevant, the reimbursement rate is 45ppm
When claiming it is the Claimant who is asserting that he/she has done X business miles in his Ford Fiesta (reg number A123 XYZ) so, if there is any fraud, it's the claimant doing it, not the Council.
It looks like they might have to change their procedures a bit, they just pay a flat mileage rate no matter what car you drive (they don't actually ask for details of the car) and they also need to send out some info to their staff (this is a new element to their procedure and the first most of the staff knew about it was when their claims were rejected)
Edited by vanordinaire on Thursday 14th January 13:39
Eric Mc said:
The claimant will base the claim on the mileage value given to the claimant by the employee.
So, if an employee has driven 200 legitimate business related miles in (say) the month, they will submit their legitimate mileage claim to their employer for 200 miles at whatever the mileage rate given by the employer is. Say, as an example, it is 30p per mile.
200 miles at 30p per mile gives a mileage claim for the employee of £60.00, The employer pays the £60 to the employee.
The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
However, this is what HMRC has adopted as the correct procedure.
It all stems from an EU VAT case dating back over 10 years involving the Dutch VAT treatment of fuel claims. Back then, Holland, like the UK, allowed Input VAT to be reclaimed by businesses on mileage claims by employees WITHOUT the need for a VAT invoice to be retained as evidence. Brussels ruled against this practice and HMRC decided they had better change before they too ended up before the Brussels VAT beak.
So what happens if the car is electric? Electricity isn't a fuel according to HMRC so surely the employer couldn't reclaim any VAT? So, if an employee has driven 200 legitimate business related miles in (say) the month, they will submit their legitimate mileage claim to their employer for 200 miles at whatever the mileage rate given by the employer is. Say, as an example, it is 30p per mile.
200 miles at 30p per mile gives a mileage claim for the employee of £60.00, The employer pays the £60 to the employee.
The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
However, this is what HMRC has adopted as the correct procedure.
It all stems from an EU VAT case dating back over 10 years involving the Dutch VAT treatment of fuel claims. Back then, Holland, like the UK, allowed Input VAT to be reclaimed by businesses on mileage claims by employees WITHOUT the need for a VAT invoice to be retained as evidence. Brussels ruled against this practice and HMRC decided they had better change before they too ended up before the Brussels VAT beak.
https://www.gov.uk/government/publications/advisor...
Fuel rates are engine size and fuel type specific so unless the council are using the lowest value for all engines then they need to know what car the journey was made in.
As for electric, no mention on the govt site.
Fuel rates are engine size and fuel type specific so unless the council are using the lowest value for all engines then they need to know what car the journey was made in.
As for electric, no mention on the govt site.
worsy said:
https://www.gov.uk/government/publications/advisor...
Fuel rates are engine size and fuel type specific so unless the council are using the lowest value for all engines then they need to know what car the journey was made in.
As for electric, no mention on the govt site.
Those are company car rates. The OP said it their own car so it's 45p a mile.Fuel rates are engine size and fuel type specific so unless the council are using the lowest value for all engines then they need to know what car the journey was made in.
As for electric, no mention on the govt site.
vanordinaire said:
Thanks for explaining more clearly, the way the council explained it, it looked like they were claiming all the VAT back on the receipts submitted.
It looks like they might have to change their procedures a bit, they just pay a flat mileage rate no matter what car you drive (they don't actually ask for details of the car) and they also need to send out some info to their staff (this is a new element to their procedure and the first most of the staff knew about it was when their claims were rejected)
Most councils implemented the "flat rate mileage" years ago (IIRC it used to be tiered, depending on engine size). It was to save money. They should be asking you for car details as well as carry out checks on driving licence, MOT, and insurance (this was to cover themselves under the corporate manslaughter act)It looks like they might have to change their procedures a bit, they just pay a flat mileage rate no matter what car you drive (they don't actually ask for details of the car) and they also need to send out some info to their staff (this is a new element to their procedure and the first most of the staff knew about it was when their claims were rejected)
Edited by vanordinaire on Thursday 14th January 13:39
plasticpig said:
worsy said:
https://www.gov.uk/government/publications/advisor...
Fuel rates are engine size and fuel type specific so unless the council are using the lowest value for all engines then they need to know what car the journey was made in.
As for electric, no mention on the govt site.
Those are company car rates. The OP said it their own car so it's 45p a mile.Fuel rates are engine size and fuel type specific so unless the council are using the lowest value for all engines then they need to know what car the journey was made in.
As for electric, no mention on the govt site.
Eric Mc said:
200 miles at 30p per mile gives a mileage claim for the employee of £60.00, The employer pays the £60 to the employee.
The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
Thanks Eric, that's a very clear explanation. The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
Just to clarify, can the business claim the VAT element on the full £60, or is there an accepted proportion of the mileage claim that represents fuel use?
Based on a gallon of fuel costing £4 and the average modern car doing 40mph, it only costs 10p in fuel per mile. Therefore the 'full £60' doesn't contain 20% on fuel. On a strictly 'cost of fuel' basis, the employee is making a nice profit from the Council so I have no issue with the Council clawing back as much as it can. It helps to keep Council Tax down y'know...
If I was the Council I might suggest 'Fine, we won't reclaim VAT on fuel and here's your 10p/mile'.
If I was the Council I might suggest 'Fine, we won't reclaim VAT on fuel and here's your 10p/mile'.
Mandat said:
Thanks Eric, that's a very clear explanation.
Just to clarify, can the business claim the VAT element on the full £60, or is there an accepted proportion of the mileage claim that represents fuel use?
At 45 pence per mile, it's not the full VAT that they claim, it's the VAT on the fuel element of that (so VAT on 11-15 pence, or thereabouts). Just to clarify, can the business claim the VAT element on the full £60, or is there an accepted proportion of the mileage claim that represents fuel use?
If they're only repaying the fuel element, which is what I would expect but will depend on the council, so in the range of 11-15 pence, then the VAT would be the full amount.
Mandat said:
Eric Mc said:
200 miles at 30p per mile gives a mileage claim for the employee of £60.00, The employer pays the £60 to the employee.
The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
Thanks Eric, that's a very clear explanation. The employer has incurred a genuine business cost of £60 in regards to motoring costs. Some of the cost relates to fuel and there is VAT included in that fuel cost which the employer is allowed reclaim. HMRC states that a VAT reclaim cannot be made without some supporting evidence that VAT has been charged, hence the requirement for the VAT invoice.
HOWEVER, the actual VAT reclaimed by the employer is NOT the full VAT showing on these invoices. It is restricted to the VAT content of the £60 amount paid to the employee.
It is not a perfect system. Mileage amounts paid to employees are supposed to cover ALL aspects of the employees motoring costs not just fuel. This includes costs such as insurance and MOT, neither of which contain VAT.
Just to clarify, can the business claim the VAT element on the full £60, or is there an accepted proportion of the mileage claim that represents fuel use?
It all adds up - my business reclaim a couple of hundred quid per quarter for my mileage - but the downside is that I have to retain evidence of the expenditure in the form of VAT invoices.
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