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VAT liability of charging electric vehicles

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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.

21st Jul 2021
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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’.

Sole traders

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.

Employees

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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Replies (7)

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By richards1
22nd Jul 2021 10:53

Well now what about the situation where I charge my car from my own electricity supply direct from the sun, am I now an electricity supplier and subject to all the regulations.

Mind you if all cars where electric how does the Government recover all that tax revenue from fossil fuels?

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By [email protected]
22nd Jul 2021 11:08

Road pricing...
I have a friend who worked for v large technology company who desperately tried to get a roll through tolling contract so that they would be the incument technology when road pricing started. Their analysis was that the Treasury is a road fuel tax junkie and would need to replace fuel duty to feed their habit.
As for the VAT on charging an electric car, the culture set by HMRC's micro analysis of definitions beyond the absurd explains why, when there is something claimable (R&D, SEISS), taxpayers do exactly the same!
Morality becomes irrelevant, is it within the rule? If you tuck people up they are likely to respond in the same way.

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By unclejoe
22nd Jul 2021 12:13

Oh dear. What will happen to domestic supplies when consumption exceeds 1,000 units. We already have used very close to 1,000 in one month when the electric Aga is put on for a houseful of guests at Christmas. With two cars in a family doing lengthy daily commutes and charging mainly at home a family could face substantial unexpected bill increases. And how is the increased rate charged - on a month by month basis, i.e. if you have exceeded 1,000 units that month you pay the additional VAT just for that month. Or done on an average basis retrospectively. Or is there a trigger - go over 1,000 units in one month and you pay the higher rate all months until there is some trigger for the rate to reduce. And how would the VAT be affected by an unusually large monthly bill because of previous inaccurate estimating? This puts an added complication on a petrol or electric car purchase decision, that needs to be factored into any costing model.

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By alejandra
22nd Jul 2021 12:30

I thought all domestic supplies remained at 5% even if they went over 1000 kw per month.
My domestic electricity supplier is still charging VAT at 5%, despite our estimated usage being 15,000 units (we have 2 electric cars and worked from home all year). Now I am worried I am in for a big retrospective bill if this is wrong!
BTW if anyone is thinking of getting an electric car, our Hyundai Ioniq is very cheap to run - our usage barely increased - but my husband's Tesla model 3 is ridiculously hungry for electricity and is costing us a fortune :(

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Replying to alejandra:
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By Plantsman
29th Jul 2021 13:45

Don’t Tesla include electricity as part of the deal?. Thought if you charge at a Tesla point it was free.

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By CHRISTINA GORHAM
23rd Jul 2021 20:31

Sooo. If I work from home and charge my car there, would it count as business or domestic if, as others have said, the usage exceeds the 1k units?

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By nigelr
25th Jul 2021 11:54

Presumably in order for Electricity Companies to charge the 20% VAT when charging a car at home they will need to install a separate meter. Otherwise how will they know which electricity is domestic and which is for chargeing the car.

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