VAT is payable if road fuel of a business is used for private motoring. The amounts are set out in Table A of section 57(3) of the Value Added Tax Act 1994, which applies flat rate values to vehicles based on their CO₂ emissions. Section 57(4) provides that the Treasury may by order taking effect from the beginning of any prescribed accounting period substitute a new table for Table A. New tables have been substituted annually to ensure the flat rates reflect the increase in road fuel costs. The most recent amendment was the Value Added Tax (Consideration for Fuel Provided for Private Use) Order 20073.

Section 57(4A) of the Value Added Tax Act 1994 was inserted by section 2 of the Finance (No.2) Act 2005, by virtue of SI 2007/946. This provision gives the power to substitute a table which describes vehicles by reference to their CO₂ emissions figure. The flat rates were calculated in line with the average cost of fuel applicable in March 2007. Section 57(4C)(b) permits the table to be supplemented by Notes. Section 57(4G) permits the Treasury to vary, remove or substitute any or all of the Notes, by order taking effect from the beginning of any prescribed accounting period beginning after the order is made. The Order substitutes a new Table A and varies Note (6)(c). The flat rates applied to vehicles based on their CO₂ emissions have been calculated in line with the average cost of fuel in March 2008. Where a vehicle does not have a CO₂ emissions figure, the Notes to the Table apply a CO₂ emissions figure by reference to the vehicle’s engine size.

The Order gives effect to Article 2 of Council Decision 659/2006/EC4 (of 25th September 2006). The Council Decision authorises the United Kingdom to fix the proportion of Value Added Tax relating to expenditure on fuel used for private purposes in business cars on a flat rate basis. That proportion is required to be expressed in fixed amounts and established on the basis of the CO₂ emissions level of the type of vehicle that reflect fuel consumption. The amounts must be adjusted annually to reflect changes in the average cost of fuel. The new rates apply to any relevant accounting period starting after 30th April 2008.

A full impact assessment has not been produced for this instrument as no impact on the private or voluntary sectors is foreseen.