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VAT on the use of hybrid and fully electric company vehicles

| Duncan & Toplis | 29 June 2022

Grants are available to cover up to 75% of the cost of installing a domestic chargepoint.

With the rising cost of fuel and the drive by the government to end the sale of new petrol and diesel vehicles by the year 2030, more people are turning towards using hybrid and fully electric vehicles. To cope with rising demand, an estimated 2.3 million more charging ports will be needed over the next decade to help the UK meet its net-zero goals, according to The Society of Motor Manufacturers and Traders (SMMT) – but what are the cost implications of going green?

If vehicles are being used for business purposes, then VAT on the ‘fuel’ used must be accounted for using the appropriate scale charges. For VAT purposes, HM Revenue and Customs (HMRC) treats hybrid vehicles as though they are a petrol or diesel vehicle of the engine size they have. The current HMRC advisory fuel rates can be found here. Where an employee uses a vehicle for business, any payments between the employer and employee for fuel (whether this is petrol, diesel or electricity) are accounted for at the prevailing rate and, where the employer has incurred VAT on that fuel/electricity for business mileage, it is completely recoverable.

It’s important to note that VAT cannot currently be reclaimed by an employer on the charging of hybrid/fully electric company vehicles at a domestic residence by employees, as this is a supply directly to the employee rather than the employer. However, this is currently under review by HMRC and so this may change in the future. If an employer was to install a charging option on their premises then the input VAT on this supply could be reclaimed by the employer. There would then be an output tax charge on the amount for private use, as a ‘deemed supply’ has been made.

You can recover the input tax for charging your electric vehicle at home only if both of the following apply:

  • you are a sole proprietor and
  • you charge your electric vehicle for business purposes

Business use versus private use

You should work out how much of the cost of charging your electric vehicle is for business use and how much is for private use. This is crucial, as you can recover VAT on only the business use amount. The usual input tax rules apply. As a sole proprietor, you can recover the input tax for charging your electric vehicle for business use at other places. Again, in this scenario, the usual input tax rules apply. It’s important to note that the rate for recovery of input tax for charging electric vehicles is the same as the VAT rate charged on the supply of electricity.

For eligible parties, the HMRC EV chargepoint grant provides funding of up to 75% towards the cost of installing electric vehicle smart charge points at domestic properties across the UK. It officially replaced the Electric Vehicle Homecharge Scheme (EVHS) on 1 April 2022.

Further considerations

In addition to the VAT implications of charging the vehicles, it is also sensible to consider the VAT aspects of buying and leasing hybrid or fully electric vehicles and factor these into the long-term affordability. Some new low-emission vehicles are eligible for a discount on their purchase price through a grant given to vehicle dealerships and manufacturers. An update to the terms of the grants available in June 2022 means that most cars are no longer eligible for this discount. However, vans, trucks and some other business vehicles are. A list of eligible vehicles can be found here.

For more information on hybrid and fully electric vehicles please see our previous articles linked here and here, or contact our team directly to discuss your options.

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