COLUMN: Charging your car’s not so simple - by Christine Hewitt, head of VAT at Duncan & Toplis accountants

With direct tax incentives encouraging people and businesses to switch to electric cars and a clear ecological case for going green, you’d expect EV charging to be a simple and straightforward matter.

Christine Newitt SUS-211207-154311001

With direct tax incentives encouraging people and businesses to switch to electric cars and a clear ecological case for going green, you’d expect EV charging to be a simple and straightforward matter.

After all, nearly 11 per cent of new cars sold in 2020 were electric or plug-in hybrids (up from three per cent in 2019) and many workplaces have installed charging stations and invested in electric company cars.

While there are many merits to having an electric vehicle, there is one important tax consideration which employers and employees should be aware of – the issue of VAT liability.

A few weeks ago, HMRC clarified its policy concerning the VAT treatment of charging electric vehicles using charging points in public places.

In particular, it clarified that the standard rate of VAT does apply to electricity used to charge electric or plug-in hybrid vehicles through these charging points, and it also explained how VAT can be recovered.

This has important implications for those who supply electric vehicle charging points and also for people who drive electric vehicles for business purposes or wish to charge their vehicles while they’re at work.

As HMRC makes clear, VAT is charged at 20 per cent at all charging points in public places, including charging points at employers’ staff car parks.

There are also no circumstances where HMRC accepts that a ‘domestic supply’ of electricity is being made, except where the supply is already ‘domestic’, such as when charging a vehicle at home.

Fortunately, VAT can be recovered for business use, but this is where things become a little more complicated because detailed mileage records must be kept to show how much vehicle charge is used for business use or private use.

For sole traders, electric vehicle power used for business use is recoverable at the rate it is charged (currently five per cent at home and 20 per cent elsewhere).

Meanwhile, VAT can also be recovered for electricity charges from an employer’s charging point to their employees’ vehicles, but, again, only for the energy used for business use.

If an employer or employee has any private 
mileage, then VAT on the supply of the electricity for this use must be accounted for by the employer, or, alternatively, the employer can recover the business element of the VAT incurred on the supply.

Strangely, this complication for VAT liability is very different to the direct tax position, where electricity provided by an employer to an employee’s electric vehicle is exempt from tax as a benefit in kind.

This means employees charging their vehicles at work are not liable to pay income tax for the value of the electricity used.

Hopefully, alongside the other, more supportive incentives, this extra complication won’t dissuade employers from continuing to switch to electric vehicles and supporting their employees to do the same.

Provided detailed and accurate records of business mileage are kept, VAT liability and recovery shouldn’t be a problem.

For more information, you can read the HMRC’s policy paper in full online, or contact our team at Duncan & Toplis for professional advice and guidance.