25 May 2023
Since writing last year, the Advisory Electric Rate has increased again on 1 December 2022 from 5ppm to 8ppm in December and 9ppm in March. Most analyses in industry report that this is still inadequate.
The true rate many see is between 10.5ppm (home charging) and 19.1ppm (Motorway charging). The rate does depend on the ability of the car in question to convert Kwh into miles and a typical rate of 4 miles /Kwh has been assumed.
The home charging cost of 10.5ppm assumes no input VAT recovery, which is in line with HMRC guidance. It is the question of VAT recovery that I want to explore a little more.
HMRC position in 2021 - Per Revenue and Customs Brief (7 – 2021)
On the subject of VAT recovery for employees charging an electric vehicle (which is used for business) at home, there is the stark message from HMRC:
“You cannot recover the VAT. This is because the supply is made to the employee and not the business.”
However, this is totally at odds with HMRC internal manual VIT13400 which specifies when input VAT can be reclaimed by the business on supplies generally to employees. Specifically, it gives “examples of supplies which are to be regarded as made to the employer (provided the employer meets the full cost) even when it may look as if the employee has received the supply:
This includes road fuel and other motoring expenses…. “
The guidance goes on:
“You should decide whether the supply is legitimately paid for by the employer for the purposes of the business. If it clearly is then input tax should be recovered. This is in keeping with the intent of the legislation.”
HMRC position in January 2022
HMRC announced that they were reviewing the VAT position where an employee is reimbursed by the employer for the actual cost of electricity used to charge a car.
The details of the change in position were set out in Motoring expenses (VAT Notice 700/64)
8. Electricity for charging electric vehicles
8.1 Who can reclaim input tax
VAT incurred by businesses when charging electric vehicles can be recovered on the business use of those vehicles, where the vehicles are charged at work or at public charging premises.
You can also recover the VAT for charging your electric vehicle if you’re a sole proprietor or a partner in a partnership business, and you charge your electric vehicle for business purposes at home.
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 by keeping mileage records. The normal input tax rules then apply.
8.2 Employees charging an electric vehicle which is used for business at a public charging point
If an employee charges an electric vehicle (whether this is a company vehicle or not) at a public charging point, the supply of electricity is made to the company or employer. They can recover the VAT on the cost of charging the electric vehicle, subject to the normal rules.
The employer must keep detailed mileage records to work out how much of the charging cost is used for business and private purposes where applicable.
8.3 Employees charging an electric vehicle which is used for business at home
Where an employee charges an electric vehicle (whether this is a company vehicle or not) at home, the overall supply of electricity is made to the employee and not the employer.
The employer is not entitled to recover the VAT on the cost of charging the electric vehicle.
8.4 HMRC review
8.4.1 Electricity paid for by employees
We are considering the situation where an employee is reimbursed by the employer for the actual cost of electricity used in charging an electric vehicle for business purposes.
This is to determine what evidence can be practicably provided, to allow the employer to claim the related VAT, subject to the normal rules.
8.4.2 Simplification measures
We are also considering other simplification measures that may reduce administrative burdens in terms of accounting for VAT on private use.
Some thoughts on this:
The statement in 8.3 contradicts what follows in 8.4 and is still at odds with the internal guidance on motoring expenses This is not surprising when you consider that 8.3 reflects the old HMRC position and 8.4 is a statement to the effect that there is recognition that 8.3 is probably not correct.
8.4.1 quite sensibly suggests that VAT is indeed recoverable and it is just a question of the evidence required to link the cost of actual charging to the mileage driven for business. One would imagine that what might, for instance, be adequate is a combination of a record of the proportion of total mileage driven for business, associated with the home electricity cost and VAT incurred by the driver.
8.4.2 implies that there is also some thought being given to the situation where an employer pays for all electricity for charging a car (i.e. both for business and private mileage) and recovers all the input VAT (which is typically what employers are doing for workplace charging). The strict position currently is that the employer should be restricting the input VAT on their electricity cost by reference to the proportion of mileage that is business. A simplification may therefore be in the form of a VAT fuel scale charge equivalent for Electric Cars i.e. a fixed amount per vehicle; similar to the regime for non-electric cars where a fuel card is provided.
A further simplification would be to allow VAT recovery by reference to the (albeit inadequate) figure of 9ppm for business mileage. A debate here may ensue on the rate of VAT to allow recovery upon- 5% or 20% given that some charging may have taken place at home and some at a work or at a public chargepoint.
A further point along the same lines is the situation where an employer pays for all electricity (home, workplace and motorway charging) and then requires the employee to repay (at say 9ppm) the cost of private mileage. In this situation the payment by the employee is VAT inclusive but what is the appropriate rate of VAT? It would seem most inequitable for VAT on an employee recharge to be at a higher rate than that at which it was incurred.
So what, you may ask, is the position some 14 months later in March 2023?
Well, sadly, nothing has moved on. The review, I am assured, is ongoing but as for a date when further guidance will be issued, nothing is forthcoming. Not even a date by which HMRC will know the date.
However, given the tone in 2022 of HMRC, it seems to me that there is tacit acceptance that VAT on home charging electric cars is already recoverable (insofar as it relates to business mileage). We are simply left to guess what is acceptable evidence. Given that it can only be a combination of mileage records and evidence of VAT charged at home, that is what I would suggest be retained.
Peter Moroz is Chairman at Innovation Financial Consultancy LLP & sits on the CIOT Employment Tax Technical Committee. Innovation are specialists on all aspects of Cars; Tax & Mileage Tracking including change management / communication strategy, and project implementations.