VAT liability of charging electric vehiclesby
HMRC has clarified the VAT treatment of the supply of electricity for electric vehicles in Revenue and Customs Brief 7 (2021), but the outcome is not what you may expect.
The ongoing supply of electricity to a person’s property of less than 1,000 kilowatt hours a month qualifies for the reduced rate of VAT under VATA 1994 Schedule 7A Group 1. This means any such supply is liable to VAT at 5%.
I suspect I’m not alone in wondering what a kilowatt hour equates to in real world use. I am reliably informed that for 50 kWh you could run your fridge for a month, leave your oven on for a solid day, or do 25 loads in your washing machine or dishwasher. It is therefore not surprising that almost all households, and many small businesses, qualify for the 5% rate and are charged VAT accordingly.
Brief 7 states that electricity provided to the general public via charging points will not qualify for the reduced rate, as it is not an ongoing supply to a single customer’s property, rather lots of ‘one off’ supplies to lots of different people at the supplier’s property.
This is not quite what the legislation seemingly says; VATA 1994 Sch 7A Group 1 Note 5(g) instead refers to a supply to a person at any premises where the supply to that person by the supplier does not exceed 1,000 kWh/month. There is no mention of any issues with there being several persons receiving a supply from a single premise. However, assuming Brief 7 is followed, electricity purchased from charging points will therefore attract VAT at the full 20%.
Now that we know what VAT a client will pay to charge their car, the next question is can they recover it? Assuming they are VAT registered, the answer, as it so often is with VAT, is ‘it depends’.
If a sole trader charges their car at home, they can recover the VAT paid on the business proportion of the cost. As for other fuel costs, the simplest way to work out the business use is to record and split the mileage driven each period and apply the business use percentage to the total cost.
The sole trader would need to record how much electricity was used to charge the car and the cost to them of doing so. The cost per kWh should be available from their electricity supplier and, as mentioned above, it is likely they will have paid 5% VAT on the purchase of the electricity.
Similarly, if they incur VAT charging their car elsewhere, at a public charging port or their business premises, they can again recover the VAT on the business element of the cost.
Things are less straightforward where the driver is an employee.
If an employee charges a car at their home, the employer cannot recover any VAT on this cost. This is because HMRC consider that the supply has been made to the employee (who is not VAT registered), not the business. Therefore, the business has no ability to recover the VAT suffered in relation to the charging. The same would apply were the employee to charge their car at a public charging point.
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