Can a business recover VAT on electric vehicles?

The surge in electric vehicle (EV) adoption has brought about important considerations for businesses in terms of VAT. In this blog, we look at the VAT aspects of EVs and the impact on businesses, specifically in the context of VAT recovery and compliance.

Understanding VAT recovery is fundamental for businesses. Generally, if a VAT-registered business incurs VAT costs for its business activities, it can recover that VAT, subject to any applicable partial exemption rules.

Purchase or leasing of electric vehicles

As with other cars, VAT on the purchase is not recoverable unless the car is genuinely a “pool” car that satisfies HMRC’s strict requirements of being kept at business premises overnight, signed in and out for use, not allocated to any one person, prohibited from personal use etc.

VAT on leasing charges for an EV will be 50% recoverable as an overhead cost of the business, the same as with conventional vehicles.       

Charging electric vehicles at home

Where charging takes place at the home of a sole proprietor or a partner in the business, then VAT incurred on the business proportion of electricity can be recovered as an overhead cost.

However, where charging takes place at the home of an employee, there is no VAT recovery for the business because the electricity supply is made to the employee, rather than to the business.

The rate of VAT charged to homes will be 5% as opposed to the 20% charged to business premises. It’s therefore crucial that only the correct rate of VAT is recovered.  

Charging electric vehicles away from home

VAT incurred on business mileage when charging electric vehicles at the workplace or at public charging points can be recovered as an overhead cost. Either the business mileage proportion is claimable, or the full amount of VAT is recovered, with an output VAT charge accounted for on private mileage.

Importantly, the rate of VAT charged on electricity at a non-residential premises will be 20%.

Administering VAT recovery on charging

To support a VAT claim, records need to evidence:

• Who has charged the vehicle (employee or owner)
• Where they have charged the vehicle (home or away)
• The business mileage

In addition, as with petrol and diesel mileage claims, a valid VAT invoice is required to evidence the VAT being reclaimed; that may be more difficult for any claims on home charging.

HMRC review

Last year, HMRC announced a review into the administrative burden for making claims for business mileage. In addition, they are assessing situations where an employee is charging at home for business use. This review aims to establish practical evidence requirements for VAT recovery.

For the time being though, VAT recovery on electric cars does present additional admin hurdles for a business to overcome.

The employment taxes aspects of EVs will be considered by my colleague, Tessa Brown, in a separate blog shortly.

Need help?

If you’d like to discuss this in more detail, please get in touch with your usual Larking Gowen contact. You can find contact details in the Our People section of our website. Alternatively, call 0330 024 0888 or email enquiry@larking-gowen.co.uk

Gillian McGill