ExpertEasy2 marksMultiple Choice
ACCA · Question 11 · Value added tax (VAT)
Section A: Objective Test
A VAT-registered sole trader provides a company car to an employee and pays for all fuel, including fuel for private use. The business reclaims all input VAT on the fuel purchased. How is the private use of the fuel accounted for on the VAT return?
Section A: Objective Test
A VAT-registered sole trader provides a company car to an employee and pays for all fuel, including fuel for private use. The business reclaims all input VAT on the fuel purchased. How is the private use of the fuel accounted for on the VAT return?
Answer options:
A.
By restricting the input VAT claim to the business proportion only.
B.
By adding a VAT fuel scale charge to output tax.
C.
By deducting a VAT fuel scale charge from input tax.
D.
No adjustment is required as it is an employee benefit.
How to approach this question
Recall the VAT rules for private fuel. If a business reclaims 100% of the input VAT on road fuel that is used for both business and private journeys, it must account for the private use by applying the VAT fuel scale charge, which increases output tax.
Full Answer
B.By adding a VAT fuel scale charge to output tax.✓ Correct
When a business recovers all the input VAT on fuel that is used for both business and private motoring, it must account for the private use. The standard administrative method is to add a VAT fuel scale charge (based on the car's CO2 emissions) to the output tax on the VAT return. This effectively acts as a deemed supply of the fuel for private use.
Common mistakes
Thinking the scale charge reduces input tax rather than increasing output tax.
Practice the full ACCA TX — Taxation Practice Exam 5
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