Draft Value Added Tax (Flat-rate Valuation of Supplies of Fuel for Private Use) Order 2013
The Committee consisted of the following Members:
† Birtwistle, Gordon (Burnley) (LD)
† Dakin, Nic (Scunthorpe) (Lab)
Denham, Mr John (Southampton, Itchen) (Lab)
† Dinenage, Caroline (Gosport) (Con)
Dobson, Frank (Holborn and St Pancras) (Lab)
† Gauke, Mr David (Exchequer Secretary to the Treasury)
† Jowell, Dame Tessa (Dulwich and West Norwood) (Lab)
† Mahmood, Shabana (Birmingham, Ladywood) (Lab)
Mills, Nigel (Amber Valley) (Con)
O'Donnell, Fiona (East Lothian) (Lab)
† Qureshi, Yasmin (Bolton South East) (Lab)
Reckless, Mark (Rochester and Strood) (Con)
Rees-Mogg, Jacob (North East Somerset) (Con)
† Rudd, Amber (Hastings and Rye) (Con)
Shannon, Jim (Strangford) (DUP)
Stunell, Sir Andrew (Hazel Grove) (LD)
† Syms, Mr Robert (Poole) (Con)
Matthew Hamlyn, Committee Clerk
† attended the Committee
First Delegated Legislation Committee
Monday 9 December 2013
[John Robertson in the Chair]
Draft Value Added Tax (Flat-rate Valuation of Supplies of Fuel for Private Use) Order 2013
4.30 pm
The Exchequer Secretary to the Treasury (Mr David Gauke): I beg to move,
That the Committee has considered the draft Value Added Tax (Flat-rate Valuation of Supplies of Fuel for Private Use) Order 2013.
It is a great pleasure to serve under your chairmanship, Mr Robertson, and to introduce the order. The order provides the method for the flat-rate valuation of supplies of road fuel. It sets out how Her Majesty’s Revenue and Customs will carry out future revalorisations of those VAT road fuel scale charges.
Let me provide some background. Where a taxpayer uses business goods for private purposes, that is deemed to be a supply for VAT purposes, and VAT must be accounted for. That includes where a business’s road fuel is used in making private journeys.
Calculating the value of such fuel is often onerous, so the UK has, for many years, had a derogation from the European VAT directive. That enables taxpayers to value such deemed supplies on a simplified flat-rate basis—the road fuel scale charges. The derogation requires that the charges reflect the average cost of fuel and that they be updated at least once a year.
Until this year, the annual revalorisation of the charges was incorporated in the Budget process and was effected by way of a statutory instrument. The revised tables of charges were incorporated in the Value Added Tax Act 1994. The Finance Act 2013 included legislation that enables us to take the revalorisation of the VAT road fuel scale charges out of the Budget process. That legislation requires the Treasury to make this order to set out how HMRC must carry out future revalorisations. The order is the final step needed to complete that change.
There will be no change to the way in which charges are calculated. The scale charges will continue to have the force of law, and their use will be optional. Businesses may use other reasonable methods to account for the private use of business fuel.
The 2013 Act requires the Treasury to set out in an order provision for the valuation of supplies on a flat-rate basis. The order must include 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 table set out in the order will replace the current table in the 1994 Act, with effect from 1 February 2014. HMRC will then revalorise the figures annually and publish an updated table, unless and until a new order is approved by Parliament. The rates of road fuel scale charge will not be affected by the changes.
I have explained that the order completes the streamlining of the road fuel scale charge process. From now on, new rates and guidance will be published in one place, providing a better service to business. Taking the revalorisation process out of the Budget process will reduce administration costs for the Government and Parliament—something we should not dismiss lightly. In that context, I commend the order to the Committee.
4.33 pm
Shabana Mahmood (Birmingham, Ladywood) (Lab): I am grateful to the Minister for setting out the basis of the order, and have only a few short questions.
First, part of the simplification and streamlining is to remove the setting of the road fuel scale charges from the Budget process, so will the Minister set out what the problems were with them being part of that process? What was the cost to HMRC and to Her Majesty’s Treasury of setting the RFSCs in that way? It would be helpful if he explained that to give us an idea of the likely savings.
I understand that there was a consultation on the order. I gather from the tax information and impact note that the comments were broadly supportive, but it would be helpful to know whether people any raised concerns.
Finally, how will we ensure that the simplification is in fact a simplification? The monitoring and evaluation section of the tax information and impact note says that the policy “may” be reviewed, but not that it “shall”. Are there any plans to keep an eye on how the change is getting along?
4.35 pm
Mr Gauke: I thank the hon. Lady for her questions. Her first question was about the Budget process and how the system works. Previously, a new statutory instrument was required annually each time a revalorisation took place. It is difficult to identify the particular cost of how it operated, but it required time and effort from parliamentary as well as Treasury and HMRC officials. The changes allow us a greater degree of certainty in the future for business and reduce the administrative cost.
The hon. Lady asked about the consultation. No issues with the order were mentioned in the consultation, so no concerns have been raised. She asked whether we have any plans to review the policy, which is a perfectly reasonable question, but we are only now bringing in the new regime. All I can give is the standard Treasury response—that the Treasury and HMRC keep all legislation under review—but there are no plans that I would highlight.
To return to the hon. Lady’s earlier question on the problems with the previous regime, it is difficult to identify what the costs would be, but the costs of the time spent keeping to the Budget process were part of the difficulty, and the changes provide a bit more flexibility. I hope that that provides useful clarification and that the order will receive the Committee’s unanimous support.