VAT and Electric Vehicles

With growing concerns about climate change and a focus on sustainability electric vehicles are becoming increasingly popular. The Government has introduced a number of favourable tax treatments to encourage the use of electric vehicles.

From a VAT perspective there are currently no specific reliefs relating to electric vehicles and when it comes to “running costs” electric vehicles are in some ways treated rather poorly.

Paying and reclaiming VAT on the purchase or lease of an electric vehicle

The VAT rate applicable to the purchase or hire of an electric vehicle is the same as for a petrol or diesel vehicle. The purchase or hire of a new electric vehicle VAT will normally attract a 20% VAT charge.

The rules for reclaiming VAT are also identical for electric and other vehicles. Where a business buys a car which is available for private use no VAT can be reclaimed. This includes outright purchase, hire purchase and personal contract purchases. Businesses may need detailed evidence to show that a car is NOT available for private use.

Where cars are leased or hired 50% of the VAT on the leasing charge can normally be reclaimed if there is mixed business and private use. VAT on any servicing or maintenance charge can be recovered in full.

The HMRC policy for other vehicles, such as vans, is to allow all VAT to be reclaimed on purchase or hire where private use is incidental. Where private use is more than incidental a proportion of the VAT incurred can be reclaimed.

Any VAT reclaim on vehicles would be subject to the normal restrictions, e.g. where a business has exempt income the VAT recovery may be limited.

Reclaiming VAT on charging electric vehicles

The current HMRC policy on reclaiming VAT incurred by businesses on charging electric vehicles is as follows

Home charging

VAT incurred on charging an electric vehicle can be reclaimed if it is charged at the home of a sole proprietor, or a partner in a business, where the vehicle is used for business purposes. HMRC expect mileage records to be kept showing business and private use. VAT can be reclaimed on the business element.

Where employees charge an electric vehicle at their home no VAT can be reclaimed as the supply of electricity is made by the utility company to the employee and not their employing business.

The VAT rate on home electricity supplies is likely to be 5%.

Charging at public charging points

Sole proprietors, partners and employees can reclaim VAT incurred on charging at public charging points.

Again VAT can only be reclaimed in respect of business mileage so appropriate mileage records will be required.

The VAT rate for charging vehicles at a public charge point is 20%.

Charging at the business’s own premises

Where vehicles are charged at the business’s premises, i.e. not a home address, and the vehicle is used for business and private mileage a record of business and private use has to be kept.

The business can reclaim all VAT on the cost of electricity but it must pay VAT on the electricity used privately. Alternatively, the business can restrict the VAT it claims on electricity and reclaim VAT only on the electricity used for business purposes.

In all cases where VAT is to be reclaimed the normal input tax rules apply and the appropriate VAT invoice will be required.

HMRC review

At present the methods of adjusting for private use involve significant record keeping and administration for potentially small amounts of VAT.

HMRC are considering simplification measures that may reduce these burdens. They are also reviewing the position regarding charging at employees homes.