These rates apply to all journeys on or after 1 December 2011 until further notice, allowing them to reflect fuel prices more quickly. For one month from the date of change, employers may use either the previous or new current rates, as they choose. Employers may therefore make or require supplementary payments if they so wish, but are under no obligation to do either.

The advisory fuel rates for journeys undertaken on or after 1 December 2011 are:

Please note that most rates have not changed. However the rate for LPG cars has reduced for those with an engine size of 1400cc or less.

Other points to be aware of about the advisory fuel rates:

• Employers do not need a dispensation to use these rates.
• Employees driving employer provided cars are not entitled to use these rates to claim tax relief if employers reimburse them at lower rates. Such claims should be based on the actual costs incurred.
• The advisory rates are not binding where an employer can demonstrate that the cost of business travel in employer provided cars is higher than the guideline mileage rates. The higher cost would need to be agreed with HMRC under a dispensation.

If you would like more information, please contact me.

The new VAT conversion fraction is 1/6 (much easier to remember than the old one for 17.5%, which was 7/47).

If want to know the net cost of something, then divide by 6 and multiply by 5. For example, something sold for £100.00 has a net value of £83.33 (100/6*5).

If you want to know the gross cost of something, then divide the net value by 5 and multiply by 6. For example, a net value of £25.00 would cost £30.00 including VAT (25/5*6).

It may sound obvious, but changes to the rate of VAT affect the VAT amount, which in turn adjusts the gross value. £20.00 is not 20% of £120.00, it is 1/6 of £120.00.

VAT is an amount added by the supplier of most goods and services to what they sell, and which they must by law pay to the government. As individuals are usually not VAT registered, what we buy includes VAT, and is not reclaimable as it is to most businesses.

Offers by shops to cover the rise in VAT mean that they keep the sale price the same, but reduce the amount they get to keep after deducting the VAT they owe to the government. For example, if you buy a sofa before the increase for £500.00, the VAT due by the seller is £74.47; after the increase, the seller has to pay £83.33 to the government, meaning they are £8.87 worse off.

To most of us, the increase will mean very little, as the impact of adding 2.5% to the cost of a purchase is pretty small. For example, assuming no other changes to its price, an item costing £100.00 in the shop will be re-priced at £102.13. To incur, say, an extra £20.00 per month as a direct result of the extra VAT would mean you were spending £940 per month.

As an individual, it’s doubtful you will feel a financial impact from this change.

So although an increase from 17.5% to 20% sounds a lot, the only real winner will be the government. Some things never change.

There are a couple of ways you can calculate how much you can claim. The simplest is to work out how many miles you drive, and use the official rates provided.

It doesn’t matter of you are self employed, or working for a company, as long as the miles you travel are for the business, and are not personal. The exception to this is your regular commute. You cannot claim for the miles driven to and from work, if you work at the same place most days. However, trips to the post office to buy stamps, to visit clients or suppliers, to visit business partners, or attend meetings are all allowable.

You may not know this, but you can also claim reimbursement if you use a bicycle to get around for business. A few years ago, the government introduced a mileage rate if you use your bicycle for business. A great way to stay fit, help the environment, and claim a tax deductible expense!

If you are VAT registered, you will need to collect VAT receipts for your fuel (not necessarily for the actual fuel you use), ensuring that the receipts are dated within your claim period.

I have created a very simple spreadsheet to help you calculate how much you can reclaim as expenses if you use your own car (or bicycle!). If you would like a free copy, please call or email me, and ask me to send it to you.

So what should you be doing to make the most of the change?

Number one, now is the time to make large purchases, such as computers and other goods and services that have a high cost. The reduction on VAT should mean that they will cost you less. Don’t forget to haggle on price as well.

Number two, check your purchase invoices from suppliers. Make sure you are being charged at the lower rate of 15%.

Number three, check the sales invoices you are issuing. If you can justify making a supply at the old rate of 17.5%, then use it.

Number four, take proper advice if you are unsure what to do. Behind HMRC’s PR is an army of folk whose job it is to collect tax.