Charge My Street Ltd – a social enterprise Community Benefit Society that installs and operates EV charging points in public places such as car parks – has won its case at the First-tier Tribunal, successfully arguing that its supplies of electricity are liable to VAT at 5% and not 20%.
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HMRC's policy
By way of background, the law says that supplies of electricity are chargeable at the standard rate of VAT, though Sch. 7A VATA 1994 specifies that qualifying supplies of domestic fuel and power are charged at the 5% reduced rate of VAT. Certain low volume supplies of fuel and power are viewed as de minimis and are deemed to be for domestic use. In the case of electricity supplies eligible for 5% VAT, Note 5(g) to Sch. 7A VATA says:
‘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.’
HMRC’s policy has been to interpret the law to mean that supplies of electricity for EV charging for private consumers at a public facility are subject to VAT at 20% and not 5%, as reflected in para 3.3.3 of VAT Notice 701/19. For example:
‘The recharging of electric vehicles when using public charging points is always treated as standard rated for VAT. 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.’
Key arguments
It has been a long-standing bone of contention that drivers who are unable to install an off-street EV charging facility at home are penalised and put at a disadvantage because they are forced to charge at a public facility.
Here, the taxpayer challenged HMRC’s policy, with two key points of the argument being around HMRC’s view of ‘premises’ plus how the rate of 1,000 kw/h per month should be calculated:
- On ‘premises’, HMRC argued the law must mean the customer’s own premises. However, the Tribunal disagreed, saying that on plain reading the law means the supply could be made at any premises – including at a public car park. The premises do not have to belong to the customer
- On the monthly threshold, HMRC argued the correct approach is to divide 1,000 kw/h by the days in a month to arrive at a pro-rated threshold of say 33 kw/h per supply. However, the Tribunal agreed with the taxpayer that a plain reading of the law is that provided supplies to a customer in a month do not exceed 1,000 kw/h in aggregate the 5% VAT rate should apply, irrespective of the fact that an ad hoc individual purchase might be for more than HMRC’s pro-rated daily figure.
So, a notable win for the taxpayer, having a potentially wide effect across the EV charging industry – but with some caveats. A decision at the First-tier Tribunal is non-binding on the Courts and does not create a wider precedent. Which currently leaves a sense of uncertainty as to the wider application of this decision. Will HMRC appeal this decision? At the time of writing we do not yet know. And will HMRC even have grounds to make an appeal? To do so HMRC would need to show the Tribunal has erred in law, which is not obviously clear – the Tribunal seems firm in its conclusions.
So HMRC’s response is awaited with interest.
Catalyst for change
But irrespective of an HMRC appeal, this decision certainly succeeds in highlighting what feels like a hard to justify inconsistency in the VAT rules for EV charging – perhaps this decision will act as a catalyst for a change in HMRC policy to equalise the position for all. The issue must surely now have moved higher up HMRC’s agenda.
In the meantime, a period of uncertainty for suppliers, who one would think will await HMRC’s response before adjusting their VAT accounting.
And if there is indeed a change in HMRC policy it will be interesting to see whether any eventual reduction in the VAT rate to 5% gets passed on to the consumer. We know from past experience that reductions in VAT rates – such as the temporary reduced VAT rate for hospitality during Covid lockdown – do not always result in lower prices for the customer.