VAT on electric vehicle charging should be 5%

VAT on electric vehicle charging should be 5%

Apr 26, 2023

Auto Trader has called for tax breaks to make electric vehicles (EV) more affordable for consumers and to put the government’s plan to ban petrol and diesel vehicles by 2030 back on track

High costs were hampering the uptake of EVs, which were 37% more expensive than petrol and diesel cars and the organisation has called on the government to introduce incentives to make EVs more attractive to consumers, such as equalising VAT charges on public and private charging.

EVs continue to be cheaper to run than equivalent engine vehicles, benefiting from lower fuel, maintenance, and tax costs, but the savings are ‘slowly eroding’ as fuel prices stabilise, and electricity prices remain high, Auto Trader’s Road to 2030 report showed.

While electric car owners with a home charger can save up to £130 for every 1,000 miles by charging at off-peak overnight rates, drivers using ultra-rapid chargers cost £16 more to run.

Only three new electric models were launched in the UK in the first quarter of 2023 – one of which was priced at over £320,000.

To support the transition to EVs, Auto Trader called for fairer charging costs by equalising VAT on public and private charging. The supply of electricity in public sites should be charged VAT at 5% rather than the current 20% for public charging.

In addition, there should be more incentives to make EVs more affordable, such as reducing VAT on used vehicle sales and lower or interest-free rates on financing deals.

Based on average electricity and fuel prices in March, electric car owners with a home charger saved £86 per thousand miles on running costs, £9 less than three months earlier.

Strong demand for EVs from businesses continues to drive the increase in the numbers sold as lower tax rates make the switch more attractive. Businesses can claim a first-year allowance of 100% against corporation tax when they purchase a new electric vehicle.

However, overall sales have fallen as the cost-of-living crisis deters private buyers, with the number of vehicles sold down 65% on the previous year.

Erin Baker, editorial director at Auto Trader, said: ‘Although current sales figures don’t seem concerning, the slow speed of growth in consumer appetite for electric vehicles reveals the market is facing a growing chasm where mass electric adoption is concerned.

‘The overbalance around electric vehicles for the early majority means the market faces a precarious combination of factors which could cause major blockers on the road to 2030 if government and industry don’t act.