Fleet News

Fleet News Campaign: FUELWISE

Get wise over fuel

THE Fleet News FuelWise campaign, in association with Arval, will help fleet decision-makers deal with the challenges of impending changes to the way firms deal with fuel. Fleet News editor John Maslen launches the campaign.

Few fleets know that much of the legislative changes that affect them now originate in Europe as Britain becomes more closely linked with the European Union. The latest piece of legislation shows how important it is to take notice of the changes that are being made.

Last week, fleets were warned of the full impact of a European row over fuel and VAT that has been ongoing for years.

Put simply, the European Sixth Directive wants to ensure that if companies are going to reclaim VAT on fuel purchases, that purchase was made by a VAT-registered company.

Therefore, if an individual purchases the fuel using a private card or cash, then the employer cannot reclaim VAT. Estimates vary, but a worst case scenario puts the cost to the fleet industry at £1.2 billion.

The ruling affects a wide variety of transactions, but one of the most wide-ranging is pay and reclaim, where a driver buys a tank of fuel and then claims back the cost, or simply claims back mileage at a set pence-per-mile rate. In both cases, this will be considered a private transaction and under the Directive, a company will not be able to reclaim VAT.

Arval, one of the UK’s largest leasing and fleet management companies, believes that the decision will have significant financial implications for UK businesses.

Typically, a company running a fleet of 100 vehicles, with drivers averaging around 15,000 miles per year, will reclaim in the region of £23,000 per year from HM Customs & Excise.

Mike Waters, head of market analysis at Arval, which is supporting the FuelWise campaign, said: ‘Companies will either have to overhaul their fuel procurement systems by introducing a purchasing mechanism that allows for billing to be made in the name of the employer or they will be unable to continue to reclaim the VAT on fuel.’

Why fleets should watch Europe closely

THE European Court of Justice decision threatens to brush aside years of UK practice in which drivers reclaim the cost of fuel they have purchase from their employers.

The current system of reclaiming VAT based on mileage allowances has been embodied in UK law since 1991, but it fails to comply with EU law because it does not ensure that the fuel is supplied to the company and not the driver.

Normally, the company does not hold a VAT invoice made out in its name, but the long-standing agreement meant that so long as firms showed they had a robust system for checking mileage and a fair mileage rate, then a reclaim could be made.

The European Commission first announced its intention to challenge the validity of the UK law back in 1998, according to Robert Crooks, VAT Partner at Ernst & Young.

Customs & Excise said the UK would resist any challenge, but said if the worst happened, it would not allow any change to be retrospective. The UK Government refused to accept the Commission’s challenge, but a similar case brought against the Netherlands was successful in November 2001.

The Commission commenced formal infringement proceedings against the UK at the start of 2003. By the end of 2004, the Advocate General issued an opinion strongly in favour of the Commission’s challenge.

These were clear warning signs that the Court was likely to rule against the UK on this issue.

Crooks said: ‘Those fears have been realised in the judgment. It seems a distinct possibility that businesses who have hitherto reclaimed VAT based on mileage allowances will be forced either to revise the way that business mileage claims are handled or to stop claiming VAT on mileage rate payments altogether.’

Your questions answered

1. What is the Sixth Directive?

Put simply, the European Sixth Directive wants to ensure that if companies are going to reclaim VAT on fuel purchases, that purchase was made by a VAT-registered company.
Therefore, if an individual purchased the fuel, using a private card or cash, then the employer can not reclaim VAT.

2.Why does it affect my fleet?

If you use pay and reclaim – reimbursing employees on a pence-per-mile basis for mileage – then that is affected and your company will not in future be able to reclaim VAT on the cost.

3.Why the sudden change?

It isn’t sudden. This has been an issue since 1998, but in the slow-moving world of European politics, it has taken until today to sort out. There have been announcements over the past few years, many reported in Fleet News, that have flagged up the issue.

4.So what do I need to do now?

Just prepare and speak to the experts. The UK isn’t going to change immediately just because the ECJ tells it to. It will spend time considering its position and before it makes any alterations to legislation, it is likely to consult with the industry. Government sources suggest it will be months before anything happens.

5.I use fuel cards, am I affected?

Where a fuel card held in the name of the company is issued to employees, this should meet the ECJ’s requirements where it used to purchase fuel for business use (or where charges are made to employees for any fuel used privately, or where the Fuel Scale Charge is to be accounted for).

6.Do I have to use fuel cards, or is there another way?

According to Ernst & Young, for retail supplies, a ‘less detailed VAT invoice’ can be produced and this is acceptable evidence to support VAT recovery.
A less detailed VAT invoice contains the name, address and VAT registration number of the retailer, the date, a description of the goods or services, the total payable and the applicable VAT rates. An important question will be whether this type of invoice – which is not made out in the name the employer – can be used to support claims for recovery of VAT on fuel costs, provided that the claim is for VAT on business mileage only.

7.Where do I go for advice?

Well, you have started in the right place. The Fleet News FuelWise campaign, in association with Arval, aims to keep the industry informed over the next few months.
For background information, you can also log on to our website, www.fleetnewsnet.co.uk and click on the FuelWise logo. You can also approach industry experts, such as Arval, for advice. For the official view log-on to http://europa.eu.int, the ‘gateway to the European Union’, but it is very difficult to navigate, just like the real thing.

Fuel cards v corporate credit cards: the great debate

IF UK domestic law is amended following the recent ruling on the Sixth VAT Directive, fleets will be unable to recoup the VAT on business fuel without adopting a fuel purchasing system, based on a fuel card or corporate credit card.

Mike Waters, head of market analysis at Arval, says fleets need to understand how both types of card could work for them. One of the main advantages of a fuel card over a corporate credit card is that the former provides fleet managers with accurate fuel management data. To start to reduce the overall fuel bill and enforce a fuel policy among drivers, fleet operators need to obtain data on spend.

UK pump prices remain high, reflecting the volatile global market for crude oil. Waters reckons there has never been a greater need for companies to keep tight control on fuel expenditure.

All fleet decision-makers need to understand the financial benefits of effective fuel management, and the tools which can be employed to mitigate against ever increasing fuel bills.

Waters said: ‘By using a fuel card, fleet operators can gain information on pence-per-litre and miles-per-gallon on all fleet vehicles and drivers.

‘This procedure is not possible with a corporate credit card, which can only give details about location, price and time of fuel purchased.

‘Critically, before fleet managers can start to reduce their overall fuel bills, this cost element needs to be separated from other expense types and made visible before the fuel bill can be tackled.

‘This is not easily achievable with a corporate credit card. Detailed fuel costs are not readily transparent from hotel bills, travel costs and corporate entertainment, making it very difficult to extract meaningful fuel data on each driver.’

However, Waters conceded that a credit card offers a degree of flexibility.

The problem, he added, was that this comes at the expense of control and control is a key element of implementing and enforcing an effective fuel management policy.

He continued: ‘A fuel card can only be used to buy petrol, diesel, LPG or lubricants in a closed network of forecourts.

‘However, credit cards provide the card user with the opportunity to spend anywhere and drivers can purchase additional items which could be swallowed up within the fuel budget. A corporate credit card can be used in any petrol forecourt, whereas a fuel card is confined to a network of forecourts.’

Fleet operators should always look closely at fuel card providers’ networks and establish if a specific card will provide sufficient coverage for all drivers, Waters claimed.

He said: ‘Arval’s AllStar card is accepted at 95% of forecourts across the UK.

‘There is little point in looking to control fuel spend if drivers expend more in fuel looking for a particular brand than they save through a fuel policy.’

Accurate fuel card reporting requires the co-operation of all fleet drivers, who have a responsibility to provide accurate mileage information and their vehicle registration at the point-of-sale.

Fleet operators should stress that the vehicle and fuel is a company resource used for business travel, and in many cases for private travel (for which drivers are accountable) and should be respected as such.

Waters reckons one of the key benefits of using a fuel card over a corporate credit card is the number of report types available, which can be regularly produced from fuel card data.

Typically, these could include target pricing reports to mitigate against rising pump costs, MPG improvement statistics to highlight good or poor fuel economy performance among drivers and vehicles, suspect transaction reporting to identify abuse and suspicious card behaviour.

He added: ‘Other options available include vehicle transaction reports that can provide full details on pence-per-mile, operating costs and total miles travelled.

‘To ensure that drivers are providing their mileages at the point-of-sale, zero mileage reports can also be used to pin-point drivers who do not adhere to company fuel policy.’

For the busy fleet operator, data is available in a range of report formats. Arval’s online Interactive system, for example, allows clients to access their accounts and run and customise their own reports whenever required.

Arval claims administration is dramatically reduced because fuel card management systems can produce a single, consolidated, cost-centred invoice for an entire fleet that doubles as a VAT receipt for every purchase.

Waters said: ‘A further benefit of a fuel card is the ability to monitor how much drivers pay for fuel by implementing target pricing initiatives.

‘By using this method, fleet managers, in conjunction with the information provided by their fuel card supplier, can set a designated price-per-litre target which all drivers should look to meet when they fill up.

‘This could be set for a regional average price at the pump with a parameter set for two pence over that price.

‘The fuel card will capture data on all drivers who do not meet this target and an exception report can be compiled.’

Arval reckons that fuel cards remain the only VAT-approved fuel procurement system that can capture detailed fuel data on all drivers across a fleet of any size.

Waters added: ‘In an age of high prices at the pump, fleet operators need fuel procurement systems that not only ensure they are able to reclaim VAT where it is due but will provide a vital tool that will help to manage fuel bills in a pro-active way.’

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