EV drivers without home chargers hit by £172m VAT penalty – New AutoMotive

Analysis from New AutoMotive has revealed a £172m-a-year VAT penalty on electric car drivers who cannot charge at home, with renters and those without off-street parking hit hardest.

UK electric vehicle (EV) drivers were found to collectively pay an estimated £172m a year in VAT on public charging, which New AutoMotive said dwarfs the £40m a year saving delivered by the Government’s cut to VAT on domestic electricity.

The research found that the temporary VAT cut, announced by Prime Minister Andy Burnham, disproportionately benefits EV owners who already have the cheapest charging options.

This leaves the drivers who rely entirely on the public network – disproportionately renters and those without a driveway – paying the full 20% rate on all their charging costs.

The findings, drawn from DVLA, DVSA and DfT driver data, break the UK’s 2.2 million battery electric vehicle (BEV) owners into four groups.

Drivers with a dedicated home charger on a cheap EV tariff save £13 a year from the VAT cut, but still pay £42 in public charging VAT.

Drivers with a dedicated charger on a standard tariff were found to save the most (£27 a year), yet still pay £62 in public charging VAT.

Drivers using informal home charging methods, such as extension leads or ‘gully charging’, save £21 but pay £113 in VAT on public charging.

The 9% of drivers with no home charging at all (around 200,000 people), save nothing and pay £216 a year in VAT.

Ben Nelmes, chief executive at New AutoMotive, said: “The Government have handed EV drivers with a driveway a tax cut on power they were already paying least for.

“Meanwhile the driver charging on a public charger down the road, because they’ve got nowhere else to plug in, is still handing 20% to the taxman on every single mile.

“That’s a design flaw, and it leaves us with a VAT system that asks most of those who can least afford to contribute.”

New AutoMotive argued that the policy inadvertently exposed a structural unfairness in how EV charging is taxed.

It said that those with driveways get tax-free power, while those without, concentrated in cities and among renters, pay a 20% premium simply for lacking access to a plug at home.

John Lewis, CEO at char.gy, said: “Public charging isn’t a lifestyle choice for millions of drivers, it’s the only option they’ve got.

“Taxing that at four times the rate of home charging punishes exactly the people the switch to electric is supposed to work for.

“If we want a fair transition, VAT can’t keep treating a driveway as a tax break.”

New AutoMotive recommended the VAT rates on home charging and public charging should be equalised.

However, the report warned that VAT cuts – like cuts to fuel duty – might not be passed on to motorists.

New AutoMotive is therefore calling on the Government to focus on cutting the underlying cost of electricity sold at public charge points by expanding time-of-use tariffs at public chargers so street-parked drivers can access the same cheap overnight rates as homeowners.

It also said that reforming grid connection costs for public charge point operators via Ofgem to lower the underlying cost of public power will cut the underlying costs.

⁠As well as accelerating access to cross-pavement charging solutions, such as pavement gullies, so more households can charge from their own domestic supply, and the deploying smart charging and vehicle-to-grid technology in high-density areas to bring down costs further.

If the domestic VAT cut lapses back to 5% as scheduled, New AutoMotive estimated that equalising public charging VAT to match would cost £120m in lost revenue, against £40m raised from EV charging on the domestic side.

Vicky Edmonds, CEO at EVA England, said: “This analysis shows the real difference that even a relatively small reduction in electricity costs can make to drivers.

“Electric cars can already save households thousands of pounds in running costs, making them one of those practical, everyday changes that can genuinely ease the cost of living.

“But far more significant reform is now needed so every driver can truly benefit from EV, not only those with a driveway.

“That means tackling the underlying cost of public charging, widening access to affordable home and overnight charging, and making sure any savings are passed directly to drivers.”