Clause 190 - Valuation of certain supplies of fuel

Finance Bill – in a Public Bill Committee am 11:00 am ar 18 Mehefin 2013.

Danfonwch hysbysiad imi am ddadleuon fel hyn

Question proposed, That the clause stand part of the Bill.

Photo of Sir David Amess Sir David Amess Ceidwadwyr, Southend West

With this it will be convenient to discuss that schedule 36 be the Thirty-sixth schedule to the Bill.

Photo of Catherine McKinnell Catherine McKinnell Shadow Minister (Treasury) 11:15, 18 Mehefin 2013

The clause updates United Kingdom VAT law on how the use of business road fuel for private journeys should be taxed, which is obviously an important issue for many of our constituents who use their private vehicles for business and personal use. It brings two concessions into law, and it is also an attempt to bring United Kingdom law within its European vires. The Government have made it clear that there are four objectives: bring the two concessions into law, amend the current legislation to make it compatible with EU law, streamline how the law is set out to aid the understanding of small businesses and simplify how the valuation tables are updated over time.

In relation to the final stated aim of the Government, the measure proposes to take the annual valorisation of the table set out under section 57 of the Value Added Tax Act 1994 out of the Budget process. Instead, HMRC will be required to update the table outside the Budget process and to a formula set out under a Treasury Order approved by Parliament. Will the Minister provide a little additional detail on that point? Will he also outline the consultation process to which that formula has been subjected and that to which it will be subjected in case of any future changes? How do we ensure that the measure is accountable to Parliament in how it is determined?

The Government’s policy objective for the clause states that, alongside any future amendments to the road fuel scale charges, they will also publish relevant guidance, achieving reductions in burdens on small businesses and reduced costs for HMRC and the Treasury. Will the Minister also provide extra detail on that point? For example, what savings are expected for small businesses, HMRC and the Treasury? What process will be put in place to ensure that the guidance produced is fit for purpose and helps to achieve those aims?

Photo of David Gauke David Gauke The Exchequer Secretary

The Government announced at Budget 2012 that we would legislate to update and streamline VAT road fuel scale charges and to bring two existing VAT extra-statutory concessions into law as part of the Finance Bill 2013. Clause 190 and schedule 36 do that.  The measure will clarify the options businesses have for accounting for VAT on road fuel used for private journeys, take the revalorisation of scale charges out of the Budget process and allow HMRC to publish—in one place—the scale charges with legal force alongside guidance for their use.

Let me provide some background to the clause and the schedule. Where a taxpayer uses business goods for private purposes, that is deemed to be supply-for-VAT purposes and VAT must be accounted for. That includes where a business’s road fuel is used in making private journeys. As calculating the value of such fuel is often onerous, the UK obtained a derogation that enables taxpayers to value such deemed supplies on a simplified flat-rate basis—the fuel scale charges. The derogation requires the scheme to be optional.

Current UK law makes the fuel scale charge scheme compulsory, but two extra-statutory concessions allow taxpayers some flexibility, consistent with the UK’s derogation. As we can no longer retain concessions, the law is being amended to allow for the scale charges to be optional within a proper legal, framework.

The clause and the schedule mean that taxpayers will retain three basic options for accounting for private use of road fuel and so will experience no change. Those are, first, not to claim VAT on supplies of fuel received; secondly, to claim VAT and account for VAT on the basis of the fuel scale charges; or, thirdly, to claim VAT and keep detailed mileage records demonstrating how the fuel is used.

Where employers charge employees for road fuel used for private purposes at less than market value, those supplies will be valued at their market value, rather than at the amount paid. That will prevent tax avoidance whereby employers make an artificially low charge for the fuel used.

As we announced in the autumn, to prevent forestalling, any supplies made between the autumn announcement and the Finance Bill coming into force will be valued by the anti-avoidance rule, but only to the extent that the fuel is used after Royal Assent to the Act. The new law requires the Treasury to set out in an order a base table of fuel scale charges and the method HMRC must use to revalorise those charges each year to reflect changes in road fuel prices.

The first such order will be laid in the autumn and the table set out in the order will replace the table in the 1994 Act, with effect from next February. After that, HMRC will revalorise the figures annually, and update and publish that table, unless a new order is approved by Parliament. To allow for new fuels and technologies becoming more popular, there is a power to change the definition of road fuel by affirmative order. That will allow users of any new fuels and technologies to benefit from the optional flat-rate scheme where appropriate. The definition in the anti-avoidance rule will similarly be allowed to be varied.

In response to questions asked by the hon. Member for Newcastle upon Tyne North, perhaps I should underline the fact that HMRC will have no discretion over how the revalorisation is done. The revalorisation will be able to reflect only the changes in pump prices each year and the prospective changes in the rate of duty. How revalorisation must be done will be set out in an order approved by Parliament after a debate, and that cannot be changed without a further parliamentary debate.

On the compliance cost to small business in understanding these new rules, it is worth pointing out that there will still be a table of charges set by reference to CO2 emissions that small businesses can simply look up and use to declare VAT on private use of fuel. No additional action is needed by small businesses to declare their tax accurately and with confidence. The changes will have no Exchequer impact and there is not expected to be either a positive or a negative impact on small businesses.

Guidance will be drafted and exposed to interested parties in time for the new statutory instrument coming into force. HMRC is committed to ensuring that the matter is simple for business to understand and apply.

The clause and the schedule ensure that UK law is consistent with the requirements of the European VAT directive and the UK’s derogation. They simplify the annual revalorisation of the scale charges, bring two concessions into law and enable the Government to ensure that rules governing road fuel are simple for small businesses to understand and apply.

Question put and agreed to.

Clause 190 accordingly ordered to stand part of the Bill.

Schedule 36 agreed to.