VAT on the use of hybrid and fully electric company vehicles

Blog Electric Car Charge

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

In light of rising fuel prices and the government’s plans to stop selling new petrol and diesel cars by 2030, more people are switching to hybrids and fully electric vehicles. According to The Society of Motor Manufacturers and Traders, there will be 2.3 million more charging ports needed to help the UK reach its net-zero goals over the next decade. But what’s the cost impact of going green?

When 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 according to the engine size they have. Updated quarterly, the HMRC advisory fuel rates are available on the Gov.uk website. Fuel payments (whether petrol, diesel, or electricity) between the employer and employee for business mileage are accounted for at the prevailing rate. If the employer has incurred VAT on that fuel/electricity for business mileage, it’s fully reclaimable.

The charging of hybrid/fully electric company vehicles at a domestic residence by employees cannot be reclaimed by an employer because it’s a supply to the employee, not the employer. However, this is currently under review by HMRC and so may change in the future. If an employer installs a charging point 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

Private vs. business use

It’s crucial that you work out how much of the cost of charging your electric vehicle is for business use and how much is for private use, as you can recover VAT on 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 locations and the usual input tax rules apply. The rate for recovery of input tax for charging electric vehicles is the same as the VAT rate charged on the supply of electricity.

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.

Along with the VAT implications of charging the cars, it’s a good idea to factor in the VAT implications of buying and leasing hybrid or fully electric cars into the long-term affordability.

For guidance and information on hybrid and fully electric vehicles, get in touch with one of our team.

Posted in Blog, Company cars.