VAT on Electric Vehicle Charging – More Confusion than Clarity?

HMRC have published a new Business Brief entitled “VAT Liability of Charging of Electric Vehicles”  - a link to the guidance can be found here   

With manufacturers increasing the number of electric vehicles in their ranges and requiring vehicle charging points as part of brand standards, the VAT treatment of charging costs will take on greater importance.  It was hoped this new guidance would answer some of the questions we had in this emerging area of tax legislation, but unfortunately it is a little short on practicalities.

Firstly, the Brief does confirm that the standard rate of VAT applies when charging vehicles through charging points in public places.  It goes on to outline the rules for how a sole trader can reclaim input VAT on home charging for business purposes, but then explains that businesses can’t recover VAT if it was an employee charging their vehicle at home.  This seems a very unusual distinction and appears at odds with other rules on reclaiming VAT on employee incurred business expenses.  It is hoped that as HMRC gives this more thought, they may issue further guidance addressing this.

Most of you now have electric charging points at your dealerships and the Brief makes it clear that the effect of private mileage must be taken into account on VAT recovery.  You have two choices here.  Firstly you could apportion the input VAT claimed based on the amount of business vs private mileage.  The second, potentially easier route however, would be to recover all input VAT and then account for a deemed supply of the cost of the private mileage – the electric equivalent of the Fuel Scale Charge.  Unfortunately HMRC gives no indication of how to calculate this.  As we have a 4p per mile advisory mileage rate for electric vehicles though, this would seem to be a reasonable basis for this charge.  Again it could be that HMRC will produce more detailed guidance for this area.

The use of electric vehicles is only going to increase and I would advise you to consider setting up systems now to address the potential tax effects on your business.   If you would like to discuss what these systems should involve and how to handle the VAT or benefit in kind implications of electric vehicles then please contact me at michelle.malone@ase-global.com

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