VAT on electric cars explained: A guide to reclaiming EV VAT

As electric vehicles gain popularity in the UK, questions about the financial aspects surrounding EVs are on the rise. One topic, in particular, is stirring many questions from the UK public. And that’s Value Added Tax (VAT) – an essential part of any vehicle purchase or leasing process.

Whether you’re a UK resident, company or finance guru, you may be wondering about the rules of Value Added Tax (VAT) on electric cars – asking questions such as:  Is there VAT on an electric car? Can you claim VAT back on electric cars for personal use? And can a company reclaim VAT on electric vehicles?

Keep reading to find out everything you need to know about EV tax and how, if applicable, you can reclaim VAT on your EV.

Is there VAT on electric cars in the UK?

All vehicles follow the same VAT rules in the UK. And despite exemptions from other charges, such as road tax, electric cars are unfortunately no exception to VAT. In 2023/2024, any purchase or leasing of an electric car will be charged VAT of 20% – no matter whether the electric vehicle is fully electric or a hybrid.

But while the 20% VAT rate is the same on all vehicles, VAT on electric cars can be reclaimed in certain circumstances. Let’s get into them.

Can you claim VAT back on EVs if they are for personal use?

Unfortunately, you can’t claim VAT back if you purchase or lease a new electric car for personal use.

Can a company reclaim VAT on electric cars?

Yes, a company can reclaim VAT on new electric cars if the vehicle will be used for purely business purposes and not personal use, according to HMRC – so long as your company is VAT registered.

In fact, VAT is reclaimable on all cars – whether petrol, diesel or electric, so long as they are new and for business use only. But it’s important to note that commuting to and from the workplace counts as personal use, and you couldn’t be able to reclaim for this.

To claim VAT back on your commercial vehicle, the company will have to demonstrate that the electric vehicle will not be for personal use – such as providing employee contracts.

Can a company claim VAT back on leased electric cars?

Whether the electric car is leased or purchased outright can affect the VAT reclaim amount. But in short, yes, a company can reclaim VAT on leased electric cars – although not the full amount.

Leasing agreements have different VAT implications compared to purchasing an electric car outright. In terms of specific numbers, HMRC states that typically 50% of VAT on a leased car can be reclaimed – unlike the 100% on a new car.

But, similarly to the purchase of new EVs, the leased car needs to be for business use only.

Can you reclaim any other business-related EV costs?

Yes, you will be glad to know that businesses can reclaim VAT for any maintenance or running costs with your business electric vehicle so long as the company pays for the costs.

Summary:

• Similarly to petrol and diesel vehicles, there is a 20% VAT charge on electric cars in the UK.
• If you are purchasing or leasing an electric car for personal use, you are subject to 20% VAT and cannot reclaim VAT.
• If you are a company purchasing new electric vehicles that your employees will use for business use only, you can reclaim VAT.
• If you are a company leasing a new electric vehicle, you will be entitled to 50% VAT back.

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