27 January '22

3 minute read

Share to:

More and more people are switching to electric cars. There’s a move away from petrol and diesel as we all become more aware of the impact of our car choices on the environment.

The UK government has been encouraging the uptake of electric vehicles to help address issues with emissions and climate change. There have been a number of tax related incentives put in place to encourage take up.

But it’s never straight forward. Particularly when it comes to VAT. There’s currently an inconsistency between the rates of VAT applied to electricity depending on where the charging happens.

HMRC is to review its guidance around employers reclaiming VAT on the cost of charging electric vehicles by employees. This is an area where more consistency would be welcomed as the VAT liability of electricity supplied and the ability to reclaim it as input tax varies according to where, and to who the electricity is supplied.

It’s complicated. VAT is charged on the electricity used to charge your car at home at the reduced rate of 5%. This is based on de minimis provisions for ongoing supplies of electricity, below 1000 kilowatts hours a month, to your home.

Electricity supplied for the same purpose at public charging points, according to HMRC’s published position, is subject to VAT at the standard rate of 20%.

So, the supply of the same thing, for the same purpose is subject to two different rates of VAT.

You might have assumed that input tax recovery would apply to these supplies of electricity as it does to other supplies of fuel for motor vehicles.

However, currently if you are a sole proprietor of business the VAT incurred on charging an electric vehicle can be recovered if you charge your electric vehicle:

  • at home or elsewhere,
  • for business purposes.
  • The rate of VAT incurred will vary according to whether you were at home or not.

If an employee charges an electric vehicle at home, their employer cannot recover the VAT incurred on the supply of electricity.

If the same employee filled a conventional vehicle with petrol, their employer could recover VAT incurred on the fuel, to the extent that it relates to business mileage.

When employees charge their vehicles at work, the employer can recover VAT to the extent that it is used for business purposes; or recover the VAT in full and make a corresponding VAT charge to the employee for private usage.

It’s not unusual for the answer to a question on VAT liability to be “it depends”. But HMRC has finally recognised that this was a step in the wrong direction. The review of these complicated regulations is welcomed. We’ll keep you posted on the outcome which will hopefully help in the drive to reduce the number of petrol and diesel vehicles on our roads.