The complicated rules of VAT liability for electric vehicle charging

July 5, 2021

Drivers will be aware that they’re being encouraged to move from petrol and diesel engines to electric or hybrid vehicles, with direct tax incentives among the many reasons for switching.

As well as the ecological case for going electric, there are incentives such as a plug-in grant to help make vehicles more affordable, a zero per cent ‘benefit in kind’ charge for the purchase of electric company cars and a 100 per cent writing down allowance for low emission vehicles. As a result, nearly 11 per cent of new cars sold in 2020 were electric or plug-in hybrids – up from three per cent in 2019.

While employers may be supportive of workers who switch to electric vehicles by installing EV charging points, or investing in electric company cars, there is one important tax consideration which employers and employees should be aware of; the issue of VAT liability.

Going against the grain

Late last month, HMRC clarified its policy concerning the VAT treatment of charging electric vehicles using charging points in public places. In particular, it clarified that the standard rate of VAT does apply to electricity used to charge electric or plug-in hybrid vehicles through these charging points and it also explained how VAT can be recovered.

This has important implications for those who supply electric vehicle charging points and also for people who drive electric vehicles for business purposes.

As HMRC makes clear, VAT is charged at 20 per cent at all charging points in public places, including charging points at employers’ staff car parks. There are also no circumstances where HMRC accepts that a ‘domestic supply’ of electricity is being made, except where the supply is already ‘domestic’, such as when charging a vehicle at home.

Fortunately, VAT can be recovered for business use, but this is where things become a little more complicated because detailed mileage records must be kept to show how much vehicle charge is used for business use or private use.

VAT recovery on EV charging

For sole traders, electric vehicle power used for business use is recoverable at the rate it is charged (currently 5% at home and 20% elsewhere). Meanwhile, VAT can also be recovered for electricity charges from an employer’s charging point to their employee’s vehicles, but, again, only for the energy used for business use.

If an employer or employee has any private mileage, then VAT on the supply of the electricity for this use must be accounted for by the employer, or, alternatively, the employer can recover the business element of the VAT incurred on the supply.

Strangely, this complication for VAT liability is very different to the direct tax position, where electricity provided by an employer to an employee’s electric vehicle is exempt from tax as a benefit in kind. This means employees charging their vehicles at work are not liable to pay income tax for the value of the electricity used.

Hopefully, alongside the other, more supportive incentives, this extra complication won’t dissuade employers from continuing to switch to electric vehicles and supporting their employees to do the same. Provided detailed and accurate records of business mileage are kept, VAT liability and recovery shouldn’t be a problem.

For more information, click here to read the HMRC’s policy paper in full or contact our team for professional advice and guidance.

Christine Newitt, head of VAT at Duncan & Toplis