VAT on charging electric vehicles

HMRC has published new VAT guidance on its policy for the supply and purchase of electricity for electric vehicles. What’s the full story?

Fuel for vehicles. As you’re probably aware, there are special rules for VAT on fossil fuels provided or purchased for vehicles. HMRC’s policy paper now sets out its view on electricity provided or bought for charging electric vehicles.

Providing electricity. VAT-registered businesses must charge the standard rate (20%) for electricity for charging electric vehicles except where the supply is ongoing, made at a person’s home and is less than 1,000 kilowatt hours per month, in which case the reduced rate (5%) applies. This means if you pay part of an employee’s electricity bill to cover charging their car at home, you must account for VAT at the reduced rate of VAT on the amount you pay them.

Reclaiming VAT. If you’re a sole trader you can reclaim VAT paid on electricity for charging your car etc. at home or at a public charging point to the extent the electric vehicle is used for your business. Where the cost can’t be specifically identified as relating to business or private travel, you must make a fair and reasonable estimate and reclaim only the business element. The position is slightly different for employees of sole traders and other businesses.

Employees. Your business can’t reclaim the VAT where you reimburse an employee for the cost of charging their vehicle at home, regardless of whether it’s used for business journeys. Conversely, you can reclaim the full amount of VAT for the supply of electricity used to charge the electric vehicle at your premises or a public place. This includes the electricity for private journeys. However, in that case you must make a fair and reasonable estimate (using mileage records kept by your employees) to account for standard-rate VAT on the value of electricity used for private mileage. Alternatively, you can recover VAT on only the business element.

If you pay an employee for charging an electric vehicle at home you must account for VAT at the reduced rate. You can’t reclaim VAT on home electricity costs incurred by an employee but you can for charging costs incurred elsewhere.