It is a common misconception that VAT is recoverable on the purchase of electric cars per se, due to some perceived underlying environmental or “green” reason. However, there is no difference in treatment for VAT purposes between electric cars or those with hybrid or traditional fuel technologies. This applies equally to outright purchases, hire and lease purchase, personal contract purchases and contract hire. The rules are the same and are broadly summarised in VAT Notice 700/64 (https://www.gov.uk/guidance/vat-on-motoring-expenses-notice-70064).
With regard to fuel costs, if a business pays an employee a mileage allowance, whereby VAT is recoverable on the fuel element of that mileage allowance, HMRC have published a 4p per mile rate for electric cars in their advisory fuel rate table.
https://www.gov.uk/government/publications/advisory-fuel-rates/advisory-fuel-rates-from-1-march-2016.
What is not made clear however, is whether the VAT contained therein should be extracted using the VAT fraction 1/6 assuming a 20% standard-rate for electricity or whether, if the car is charged at home, 1/21 should be applied for the domestic rate of electricity at 5% and how this calculation would work if the car is charged at home and at the business, and possibly at third party charging points as well. As an additional complication, it is likely that input tax is already being recovered by the business on its electricity so, if a car if charged at the premises, claiming on the mileage would result in some duplication. Croner Taxwise have sought clarification from HMRC but to no avail; this is clearly an area where some workable simplification could be published.
The advisory fuel rate table does confirm that hybrid cars are treated as either petrol or diesel cars for this purpose.
In summary, any ecological benefit does not result in a VAT benefit, and until HMRC clarifies guidance it leaves a rather grey area in respect of charging costs.
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