Payroll
treated as either petrol or diesel, and the corresponding advisory rates apply. In theory, where an employer pays a mileage allowance for business use, it should be entitled to recover the VAT cost of the fuel element. There are several apparent difficulties with electric cars. If the driver charges the car at home, there would have been a VAT charge of 5%. Therefore, it could be argued that 1/21 of the 5p is VAT. However, HMRC maintains that the supply of domestic power is to the individual, and VAT is not deductible by the business. There has always been a similar argument, brought in an action by the European Court of Justice (ECJ) against the UK, that petrol supplied at a petrol station is to an employee and not the business. But it was accepted, by way of compromise, that VAT could be recovered provided the employee submitted receipts to cover the cost of the fuel element of the mileage claim. Presumably, an employee’s electricity bills could be provided in the same way. Where a driver recharges at a public or commercial facility, the charge would, as previously discussed, be subject to VAT at 20%. There ought to be no problem for
the supplier to provide an invoice, and in this case, the VAT element of the 5p per mile would be 1/6. But what if the driver recharged at a free facility provided by a vehicle manufacturer? Or at the employer’s premises where the employer would have already recovered the VAT on the cost of the electricity? There are third party solutions for managing electric vehicle charging costs that allow businesses to accurately identify charging costs and locations
the recharging for the total business and private mileage was undertaken in a mixture of ways. There are third party solutions for managing electric vehicle charging costs that allow businesses to accurately identify charging costs and locations (at their employees’ homes and elsewhere). It would seem perfectly reasonable, therefore, that, where the VAT on the total cost of recharging a vehicle can be accurately identified, the business element should be recoverable on a pro-rata basis. There is suggestion that no VAT should be recovered on mileage rates for electric cars, but this does appear to be a too simplistic approach to tackling an issue that needs to be reviewed in detail. In conclusion The decision to use fully electric cars, while delivering environmental benefits, doesn’t confer any VAT advantage. The rules for VAT recovery on acquisition are no different from those for other vehicles. When it comes to recharging, particularly recovering VAT on the mileage allowances, the rules appear very disjointed and somewhat confusing. Further clarity from HMRC would be most welcome. n
In theory, this could lead to the employee submitting VAT receipts for recharging at commercial facilities that cover all the business miles undertaken, even though
Contains updated information from the Autumn 2021 budget
CPD 7 points
Payroll update
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| Professional in Payroll, Pensions and Reward |
Issue 77 | February 2022
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