Electric Company Cars - Be wary of the VAT Treatment
There are numerous incentives at the moment for drivers to switch to electric vehicles - not least the 1% Benefit in Kind (BIK) rate on fully electric vehicles run as company cars.
However as a business owner, what is the VAT treatment on electric company cars? It's not as straight forward as you ,might think.
Under current law, an electric vehicle will still be viewed as a car for VAT purposes and is therefore treated as you would a diesel, petrol or hybrid car.
Therefore, if there is any private use of the car VAT is not recoverable on the purchase (This includes if the vehicle is simply made available for private use, without being actually used that way)
VAT Notice 700/64 section 2.1 defines a car for VAT purposes as
any motor vehicle of a kind normally used on public roads which has 3 or more wheels and either:
is constructed or adapted mainly for carrying passengers
has roofed accommodation to the rear of driver’s seat that’s fitted with side windows or that’s constructed or adapted for the fitting of side windows
The Notice gives exceptions which are not cars for VAT purposes; In these cases normal VAT recovery would apply
vehicles capable of accommodating only 1 person or suitable for carrying 12 or more people including the driver – eg a minibus
vehicles of not less than 3 tonnes unladen weight
vehicles with a payload of 1 tonne or more – for example some pick-ups with double cabs.
The VAT (Input Tax) Order 1992 (SI 1992 No 3222) is the statute blocking the VAT recovery when the vehicle is made available for private use. HMRC define this as when there’s nothing preventing you or your employee from using the car for private use. The fact that you bought your car for the purpose of your business is not the only requirement. You need to ensure that the car is not made available to yourself or anyone else for anything other than business purposes. If you can prove the vehicle is not available or used privately (eg a pool car that is kept on company property and available to all staff for work purposes only then there is a case to argue for VAT reclaim, but the decision is evidenced based an you must keep records accordingly.
A similar restriction also applies to leased cars, however there is some VAT concession here in section 4 of Notice 700/64. Where there is any private use of the car then only 50% of the VAT on the leasing charge is input tax. If the business is partly exempt, further restrictions may apply. The 50% block applies to all the VAT on the rental charges but if an optional maintenance contract is supplied and identified separately the VAT on this may be recovered in full subject to the normal rules.
EV's are becoming increasingly popular company purchase or lease, but do make sure you take proper advice as to not only the VAT, but also the Corporation Tax and Personal Tax implications before committing to buying/renting. We have more on the personal tax and corporation tax side in our Company Expenses guide released later this week.