Value Added Tax (VAT) On Electric Cars
With fuel prices at an all-time high, growing concerns of climate change and future sustainability, people are looking to alternatives such as electric vehicles. The Government are supporting this with providing several tax incentives for electric cars. Unfortunately, the VAT rules relating to electric cars are less so.
Purchase or lease of an electric car
The purchase or lease of an electric vehicle follows the same VAT rules as a petrol or diesel vehicle and will normally attract a 20% VAT charge.
Where a business buys a car that is available for private use NO input VAT can be reclaimed. A car is available for private use when there is nothing preventing you or your employee from using the car for private use. The fact you purchased the car for business purposes is not the only requirement and you need to make sure that the car is not made available to anyone else. Please remember that commuting between your home and workplace is classed as personal use and not business travel. We would therefore suggest that businesses have detailed evidence to show that a car is NOT available for private use if they wish to reclaim the input VAT where it is solely used for business purposes.
If you lease or hire a qualifying car for business purposes that has some private use, there is a 50% block. You can only recover 50% of the input VAT charged on the rental of the vehicle under the terms of the leasing agreement and subject to the normal rules.
HM Revenue and Customs accepts that if a vehicle is used for taxable business purposes, then the VAT charged for repairs and maintenance is recoverable input VAT as long as the business pays for the work. This applies irrespective of whether the vehicle is partially used for private motoring.
Charging electric vehicles
Sole proprietors or partners in a partnership business can recover the VAT incurred on the cost of the charging of an electric vehicle for business use whether the vehicle is charged at:
- at home - likely to be at the reduced rate of 5%
- at public charging premises – standard rate, currently 20%
- at work premises – standard rate, currently 20%
If the vehicle is used for both business and private use, you are only able to reclaim the VAT in respect of business mileage. HM Revenue and Customs will expect detailed mileage records to be kept.
If an employee charges an electric vehicle at either a public charging point or at work premises the employer may either:
- recover all the input VAT incurred on the business of charging the vehicle and account for output VAT on the private use of that vehicle
- only recover VAT on the business miles undertaken by the employee
subject to the normal rules. Again, the employer should keep detailed mileage records.
If the employee charges the vehicle at home, the employer is not entitled to recover the VAT as the supply is made to the employee and not the employer. This does not matter if it is a company vehicle or not.
HM Revenue and Customs’ guidance does not specifically mention the VAT treatment of vehicles that are not available for private use such as electric commercial vehicles and genuine pool cars. It appears the normal input tax rules apply to the electricity used to charge these vehicles and therefore if the vehicle is charged at the company premises and is solely used for taxable business purposes, then input tax incurred is recoverable in full.
HM Revenue and Customs review
Currently, there is a large amount of record keeping required for recoverability of VAT on charging electric cars. HM Revenue and Customs are considering simplification measures to reduce the administrative burden and are reviewing the VAT recoverability on electric vehicle charging. The above guidance is therefore likely to be future changes when they update their policy.
If you have any queries about claiming VAT on an electric vehicle or are considering purchasing or leasing an electric vehicle for your business, please get in touch as the policy is subject to change and we will be happy to help.
Louise Heywood FCCA
Manager
Lou has worked with Margaret since 2006 and is a qualified Chartered Certified Accountant. Lou has an agricultural based portfolio and enjoys assisting farmers in all aspects of accountancy and taxation. She can be reached in the office on a Monday, Tuesday or Thursday.
Lou has a very happy (most of the time!) and young energetic daughter, who takes up the majority of her free time. They both enjoy going back Lou's parents dairy farm and helping out when they can, with her daughter also showing a passion for farming.