A supply of electricity is charged at the standard rate of VAT, other than a supply for domestic use, which is charged at the reduced rate of 5%, and low-level usage in other settings which is ‘deemed’ domestic use, also 5%.
Supplies of electricity from charging points, although small amounts, do not meet the conditions to be deemed domestic use as they are not supplied to a property, and therefore are standard rated.
HMRC has, this week, issued guidance in Brief 7/2021, which addresses some points but leaves a number of questions unanswered.
The brief covers input tax recovery by sole proprietors charging their vehicles at home or elsewhere; employees charging a vehicle at home, and employees charging a vehicle at the business premises. It also confirms that the rate recoverable is the rate charged on the electricity supply.
In summary, sole proprietors may recover input tax on charging their vehicles to the extent of business use, so will need to apportion any charging costs between business and private/non-business use. Normal input tax rules apply so if the business is not fully taxable it may need to restrict the input tax under the partial exemption rules.
Although the brief only mentions sole proprietors, it would make no sense if partners in partnerships were not also able to recover input tax on the same basis.
Where an employee, presumably including a director of a limited company, charges a vehicle at the business premises, the input tax can be recovered, but again, only to the extent of business use. This will mean that a business used to recovering input tax in full on its electricity bills will now need to carry out some apportionment to reflect private use of the electricity. The employee will need to provide details of their business and private mileage. As an alternative to apportioning the input tax, output tax can be accounted for on the deemed supply for private use. I would suggest that this could be done using the advisory fuel rate for fully electric cars of 4p per mile although the brief makes no mention of this.
No VAT recovery is available for employees who charge an electric vehicle at home for business use as the supply is made to the employee and not to the business. It is not clear why HMRC consider this to be any different to an employee buying fuel at a filling station and claiming for business miles using the advisory fuel rates. Hopefully they will review this in due course.
Hybrid cars are not mentioned in the Brief, but for vat purposes they are treated as either petrol or diesel cars and input tax claims should be followed in accordance with VAT Notice 700/64, Section 8.
While it is positive that HMRC have issued something to address questions which are clearly being posed to them, it does leave a number of points unclear. We can only hope that these will be addressed before too long.
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