Is Government Policy at Odds with The Law on Public Electric Vehicle Charging?

80% of MPs disagree with the government policy on electric vehicle charging¹ - but it turns out, unless there’s some very atypical driving patterns that we are unaware of, so does the law.

Many within the EV sector have voiced annoyance in the media at the standard rate of VAT being applied to electricity purchased to recharge electric vehicles at public charging stations. The VAT Team think this is at odds with the law and that taxpayers with public charge stations may have claims for four years of overpaid tax. In fact, the only EV owners that should be liable to pay the 20% VAT would be those travelling nearly 2,900 miles, every month, solely using public charging points that are all owned by the same supplier. How many people fit that description? Certainly not enough to base an entire policy around.

Revenue and Customs Brief 7/21 clearly states that “There is no exemption or relief that reduces the rate of VAT charged.” It seems to be universally accepted that the supply of electricity when charging electric vehicles at public charging stations is charged with VAT at 20%; but where does the policy come from and what does the law say?

The answer, upon review of reduced rate relief in the VAT Legislation, suggests that it is not as straight forward as suggested in HMRC’s brief. In fact, having had a spirited technical discussion about it at The VAT Team head-quarters, we all agreed on the same conclusion.

We decided we would actually go as far as believing that the majority of electricity supplied for charging electric vehicles in public spaces actually qualifies for 5% reduced rating for VAT.

So why do we disagree with HMRC? It isn’t the first time HMRC’s policy has been rushed to press via a business brief subsequently requiring change or clarification. Take for example early termination fees and compensation payments, and the treatment of pension fund management services. In this case, by law electricity supplied to any person should be charged at 5% if the total amount of electricity supplied to that customer by the supplier in a month does not exceed 1000kwh (you may see this referred to as the de minimis amount). However, it appears that HMRC policy has added some conditions for reduced rating which aren’t in the VAT legislation, or at the very least assumed it to be impossible for taxpayers to prove the conditions for 5% are met.

WARNING: the following paragraphs contain some serious VAT Geek commentary!

The reduced rate for supplies of electricity in Group 1 Sch 7A of VATA 1994 simply states “Supplies for qualifying use of […] electricity.”. As with much of the VAT legislation we need to refer to the Notes to find out what the conditions are and whether any of the ordinary language phrases have some obscure VAT definition. From the Notes to this group, we learn that “qualifying use means (a) domestic use; or (b) use by a charity otherwise in the course of furtherance of business”. You might think you know what “domestic use” means, but perhaps unsurprisingly to those of us who spend much of our time with noses in the VAT legislation, the Notes contain yet a further definition of “domestic use” in relation to electricity. Included in those supplies deemed to be for domestic use is “a supply of electricity to a person at any premises where the electricity (together with any other electricity provided to him at the premises by the same supplier) was not provided at a rate exceeding 1000 kilowatt hours a month”. It is this Note which HMRC refer to as the de minimis provision in its brief.

So to recap, in order to be reduced rated a supply of electricity must be for domestic use (or non-business use by a charity), supplied at any premises providing that the supplier does not provide the customer with more than 1000 kilowatt hours per month. Those with a keen eye note emphasis added to “any”, and we do so because it appears this has been missed by HMRC’s policy unit.

In its brief HMRC states - “The de minimis provision does not apply to supplies of electric vehicle charging at charging points in public places. This is because these supplies are made at various places such as car parks, petrol stations and on-street parking, not to a person’s house or building. In addition, these supplies are not usually an ongoing supply to one person where the rate of supply can be calculated.”

The legislation does not contain the condition that electricity is to be provided to a person’s house or building so, the fact that this imaginary condition is not met does not preclude the relief from applying. Whilst the brief is written on the basis the supply doesn’t meet the qualifying criteria for reduced rating, we are given a clue in this last sentence that perhaps the policy is based on it being difficult to prove the number of kilowatt hours being provided to each customer per month. If this is the case, it is not that reduced rating doesn’t apply by law, just that HMRC doesn’t accept that the taxpayer can prove the total amount of electricity provided to an individual customer per month is no more than the required 1000 kilowatt hours.

At The VAT Team, we are VAT experts, we are definitely not electric car experts, but a quick search suggests that the average kilowatt hours (KWH) used to travel 100 miles is 34². Therefore, EV owners would need to do more than 2,900 miles per month on electric purchased from public charge stations operated by the same business to exceed the limits above which the 5% VAT rate no longer applies. Based on the DfT’s National Travel Survey³, this is more than five times the national average. According to one study⁴ 80% of charging is done at home which makes the likelihood of drivers exceeding the de minimis amount at public charging stations even smaller.

So what now? If you own public electric vehicle charging stations and want us to connect you one of our expert consultants to discuss the potential for claiming overpaid VAT on your supplies, please contact us using the form below. Equally, if you work in a full-service accountancy firm that could benefit from the technical expertise within The VAT Team to support your internal VAT capabilities in this and similar matters, we’d love to hear from you.