Clause 2 - Cars: determination of consideration for fuel supplied for private use
Finance Bill
10:45 am
John Healey (Financial Secretary, HM Treasury; Wentworth, Labour)
Sir Nicholas, I welcome you and your co-Chairman. Based on my experience of other Committees, let me say that I appreciate to the firm and fair way in which you conduct proceedings. I look forward to serving under your chairmanship and that of Mr. Cook.
Clause 2 is modest and straightforward. It is designed to provide the flexibility for the VAT fuel scale charge system to be amended to include a charge based on a vehicle's carbon dioxide emissions. The fuel scale charge system is a business facilitation measure that offers a simplified method of taxing the private use of a fuel when a vehicle is used for both business and private purposes. Without such a system, taxpayers would have to keep a full record of mileage driven in order to apportion the tax charge between private and business motoring. Taxpayers can choose to operate the normal rules and keep such detailed mileage records if they wish, but, unsurprisingly, most businesses choose to apply the fuel scale charge.
In broad terms, the system provides the taxpayer with a figure for the average fuel expenditure on private mileage, the calculation of which is based on private motoring data. Business tax payers use that figure to calculate an output VAT charge to account for their private mileage. The current charge is based on a combination of engine size and type of fuel. Clause 2 gives the flexibility to reform the charge to one based on CO?2? emissions, which would align the VAT fuel scale charge with the Government's other reforms to transport taxation in order to support our environmental objectives on climate change and air quality and to encourage a switch to less polluting cars through tax incentives and other measures.
The proposal is entirely consistent with the action that we have taken since 1997 and with our reforms to vehicle excise duty in 2001, to company car tax in 2002 and to the direct tax system for fuel scale charges in 2003. Let me clear: our objective in making the change is purely environmental, no more, no less. It is not intended as a revenue-raising measure. Any change to a CO?2? basis for the VAT fuel scale charge will be revenue neutral overall.
As members of the Committee would expect, Her Majesty's Revenue and Customs has already been discussing with business the proposed change to basing the fuel scale charge on emissions. We have heard useful views in those discussions and the informal consultation, which we will continue before publishing any regulations to make the reforms that are provided for in clause 2. It is sensible to align the VAT system more closely with the direct tax fuel scale charge. It is sensible that businesses account for direct tax and VAT on fuel where possible on a consistent basis. It is obviously sensible that the industry has the opportunity to discuss the details of any scheme.
The flexibility contained in the clause acknowledges the need to secure a derogation from the European Commission before we can introduce such a scheme. It also offers the opportunity for HMRC to design an effective scheme, following detailed discussions with the industry. I commend the clause to the Committee.