HMRC has updated its VAT Notice 701/19 from 5 January 2024.
Sections 2, 3 and 5 have been amended to include information about the VAT treatment of charging of electric vehicles (EVs) when using charging points.
Tag Archives: VAT-electric-cars
VAT: Recovering input tax on the charging of EVs
Following my last article on charging Electric Vehicles (EVs) I have been asked about the rules on recovering VAT incurred by a business on such costs.
The current rules are:
VAT incurred by businesses when charging EVs can be recovered on the business use of those vehicles, where they are charged at work or at public charging premises.
A business can also recover the VAT for charging EVs if it is a sole proprietor or a partner in a partnership business, and it charges the EV for business purposes at home.
A business must calculate how much of the cost of charging its EV is for business use and how much is for private use by keeping mileage records. The normal input tax rules then apply.
If an employee charges an EV (whether a company vehicle or not) at a public charging point, the supply of electricity is made to the company or employer. The business can recover the VAT on the cost of charging the electric vehicle, subject to the normal rules.
Again, the employer must keep detailed mileage records to calculate how much of the charging cost is used for business and private purposes.
However, where an employee charges an EV (whether a company vehicle or not) at home, the overall supply of electricity is made to the employee and not the employer. The employer is not entitled to recover the VAT on the cost of charging the electric vehicle.
NB: We understand that HMRC’s view on this may be soon be challenged.
Current developments
- HMRC is currently reviewing the situation where an employee is reimbursed by the employer for the actual cost of electricity used in charging an electric vehicle for business purposes.
- The Department is considering other simplification measures that may reduce administrative burdens in terms of accounting for VAT on private use.
- The VAT rate applicable to public charging is 20%. We are aware that there could be a legal challenge to this and that the appropriate rate should be 5% (for all forms of EV charging). The reduced rate of VAT currently only applies to supplies of electricity to a person’s property which is less than 1,000 kilowatt-hours a month.
Hybrid cars are treated as either petrol or diesel cars for VAT purposes. The rules on input tax for petrol and diesel vehicles are here.
VAT: Charging EVs ruled to be goods not services
Latest from the courts
In the Court of Justice of the European Union (CJEU) it was ruled that electric vehicle charging via public charging points, was a supply of goods, regardless that some elements of the supply were services, ie; access technical support, reservation of a charging point, and a parking space while charging. The overriding supply was the provision of electricity which is classified as goods.
The full P. In W. case here.
It is unlikely that the UK authorities will form a different view.
Although in most cases there is unlikely to be a significant difference, although there could be issues with the time of supply (tax point).
VAT: Motoring costs – A guide
VAT Basics
Nearly all businesses incur car motoring expenses, so here is a guide to the VAT impact:
Buying a car
A business cannot recover the VAT on a car purchase, unless it:
- is a stock in trade of a motor manufacturer or dealer
- is a taxi, driving instruction car, or self-drive hire
- will be used exclusively for the purposes of your business and would not be made available for the private use of anyone
Leasing a car
If a business leases a ‘qualifying car’ for business purposes it will normally be unable to recover 50% of the VAT charged. The 50% block is to cover the private use of the car.
However, a 100% reclaim is possible if it is to be used for hire with a driver for carrying passengers or providing driving instruction.
The 50% block applies to all the VAT on charges paid for the rental of the car. This includes:
- optional services — unless they’re supplied and identified separately from the leasing supply on the tax invoice
- excess mileage charge — if it forms part of a supply of leasing but not if it was incurred on an excess mileage charge that forms part of a separate supply of maintenance
Fuel
The options for claiming input tax on road fuel are as follows:
- claim 100% of the VAT charged. This is possible if fuel is bought for business motoring only or for both business and private motoring and the appropriate fuel scale charge (see below) is applied on the value of supplies of fuel for private use
- use detailed mileage records to separate business mileage from private mileage and only claim for the business element
- claim no input tax
Road Fuel Scale Charge
A scale charge is a way of accounting for output tax on road fuel bought by a business for cars which is then put to private use. If a business uses the scale charge, it can recover all the VAT charged on road fuel without having to split mileage between business and private use. The charge is calculated on a flat rate basis according to the carbon dioxide emissions of the car. The charges are set out in the fuel scale charge table.
Mileage records
HMRC calculation example:
- Total mileage: 4,290
- Business mileage: 3,165
- Cost of fuel: £368.
- Business mileage: £368 × (3,165 ÷ 4,290) = £271.49
- Claimable input tax: £271.49 × VAT fraction = £45.25
Fuel paid for by employees
If a business reimburses its employees for fuel used it can treat the VAT they paid as its input tax. But the business must be able to show that it has reimbursed them for their actual expenditure on the fuel. If fuel bought by employees for business is put into private use, the business must account for output tax on the private use using the scale charges or the value.
Electric vehicles
Details of input tax recovery and output tax due here.
Input tax on repairs
If a vehicle is used for business purposes, there is a 100% reclaim of the VAT charged on repairs and maintenance as long as the business paid for the work and the vehicle is used for some business purposes. It does not matter if the vehicle is used for private motoring or if you have chosen not to reclaim VAT on road fuel (see below).
Other motoring expenses
Input tax incurred on all other business motoring expenses, eg; fleet management charges or parking charges is fully recoverable input tax.
Selling a car
If a car is sold on which input tax was recovered, eg; a driving school car, VAT is due on the full selling price. The supply of these vehicles are cannot be made under the second hand margin scheme.
If a car is sold where VAT was charged on purchase but could not be recovered there is no VAT due on the sale of it. Such a supply is exempt and must be consider in any partial exemption calculation. For most businesses this will not be an issue.
If a business sells a car where VAT was not charged when it was purchased, eg: from a private individual or from a dealer who sold it under the second-hand margin scheme, no VAT will be due unless the sale was at a higher value than the purchase price. In which case VAT will be due under the margin scheme.
NB: The VAT rules for commercial vehicles will differ.
VAT due on the charging of electric vehicles
As a result of enquiries from businesses and trade representatives, HMRC has announced that output tax is due on electric vehicle (EV) charging.
The use of EV charging points is becoming more common in public places. HMRC has clarified the rules in specific cases, and confirm:
Output tax
Supplies of EV charging through charging points in public places are charged at the standard rate of VAT. There is no exemption or relief .
NB: There is a reduced rate of VAT for supplies of small quantities of electricity, known as ‘de minimis’. However, the de minimis provision only applies if the supply of electricity is all of the following:
- ongoing
- to a person’s house or building
- less than 1,000 kilowatt hours a month
Consequently, the de minimis provision does not apply to supplies of EV charging as this is done at charging points in public places, eg; car parks, petrol stations and on-street parking, and not to a person’s house or building.
Input tax
A business may recover the input tax incurred in charging its EVs if all of the following apply:
- it is a sole proprietor
- you charge your EV vehicle at home
- the EV is used for business purposes (an apportionment must be made between business and private use)
If an employee charges an EV (which is used for business) at home (s)he cannot recover the input tax as the supply is made to the employee and not to the business.
If an employee charges an employer’s EV (for both business and private use) at the employer’s premises the employee will need to record the business and private mileage. Recovery of the full amount of VAT for the supply of electricity used to charge the EV is permitted (including the electricity for private use). However, output tax will be due on the charge on the amount for private use. Alternatively, a business may recover VAT on only the business element.