Many people are switching to electric and hybrid cars in the UK. Businesses and private motorists are increasingly choosing electric and hybrid vehicles due to lower running costs, environmental considerations, and government policies supporting low-emission transport.
However, many buyers often ask if there is any VAT on electric and hybrid cars. Whether you are a private buyer looking to make the switch or a business owner managing a fleet, understanding how Value Added Tax (VAT) applies to electric vehicles (EVs) and hybrid cars is important.
This guide explains VAT on electric and hybrid cars and how it works. It also highlights business lease agreements, charging costs, and business use.
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What is VAT on Cars in the UK?
Value Added Tax (VAT) is a tax added to the price of most goods and services. In the UK, the standard VAT rate is 20%, which applies to cars as well. Whether you are purchasing a fully electric car, a plug-in hybrid (PHEV), a self-charging hybrid, or a petrol or diesel vehicle, the standard VAT rules generally apply.Is There VAT on Hybrid Cars?
Many people assume that there is no VAT on electric and hybrid cars. However, that is not true. Electric and hybrid vehicles are subject to 20% VAT, just like petrol and diesel cars. Whether you can reclaim VAT depends on whether the car is used for business or personal use. In the UK, some tax benefits may apply to low-emission vehicles, but that does not mean hybrid cars are VAT exempt. Keep in mind that VAT applies to both electric and hybrid vehicles. For a clearer idea, look at the table below that compares VAT on electric and hybrid cars:| Feature | Electric | Hybrid |
| VAT on purchase | Cannot claim VAT on purchase for private use | Cannot claim VAT on purchase for private use |
| VAT on lease | Can reclaim 50% if privately used | Can reclaim 50% if privately used |
| VAT on charging/fuel | Recoverable for business use, subject to HMRC rules | Fuel VAT subject to standard motoring rules |
| VAT on maintenance | Usually recoverable | Usually recoverable |
How VAT on Electric and Hybrid Cars Works in the UK?
Electric and hybrid vehicles are subject to VAT, and this tax applies whether you buy the car outright, finance it, or lease it. For instance, you are buying a new electric vehicle (EV) for £30,000 before any VAT. You will pay 20%VAT on this price, which is £6,000. So, the total price of the vehicle is going to be £36,000. However, the rules for reclaiming the VAT are quite different. A VAT-registered business may reclaim VAT on the purchase of an electric or hybrid car only if the vehicle is used exclusively for business purposes and is not available for any private use.Can You Reclaim VAT on Electric and Hybrid Cars?
If you are buying an electric car for business use, you may be able to reclaim VAT, depending on how the vehicle is used and HM Revenue and Customs (HMRC) rules. To claim VAT on electric cars, you need to be a VAT-registered business, and the car is used exclusively for business. If you are a private buyer, you cannot reclaim VAT, and different rules apply to leased vehicles. Keep in mind that hybrid cars follow the same VAT rules as fully electric cars. Here is how it works: A VAT-registered business may reclaim 100% of the VAT on purchasing an electric or hybrid car only if the vehicle is used exclusively for business purposes and is not available for any private use. If the vehicle is available for any private use by employees or directors, you cannot reclaim VAT on electric and hybrid cars either. Moreover, if the car is used for any private journeys, including commuting, you cannot reclaim the VAT on the purchase.Can You Claim VAT Back on a Car for Personal Use?
No, you cannot claim VAT on electric cars for personal use. As mentioned, VAT can only be reclaimed by VAT-registered businesses on purchases that meet HMRC's rules. If you bought a car for private use, or if it is available for private use, you cannot reclaim VAT on electric and hybrid cars.What if You Use the Car for Both Business and Personal Trips?
If a company car is available for any private use, including commuting, you cannot claim VAT. HMRC generally does not allow VAT to be reclaimed on the purchase price of the car if it is used for personal use. However, different rules apply to leased cars. VAT-registered businesses can generally reclaim 50% of the VAT charged on lease rentals where the car is available for private use.Is There VAT When You Lease An Electric Car?
Yes, VAT applies to a leased electric car. This VAT on electric and hybrid cars depends on whether it’s a personal lease or a business lease. If you lease the car privately, the lease payments normally include 20% VAT, and you cannot reclaim the VAT. However, if a VAT-registered business leases an electric or hybrid vehicle, the leasing company charges VAT on the lease payments. Additionally, the business can claim 50% of the VAT on lease payments if there is any private use. However, if there is no private use whatsoever, businesses may normally reclaim 100% of the VAT charged on lease rentals. Note: If a private buyer buys or leases an EV or hybrid car for personal use, they cannot reclaim VAT on electric and hybrid cars.How Much is VAT on Electric Cars?
The VAT rate on purchasing an electric car is 20% in the UK, which is the same as the rate applied to petrol and diesel vehicles. However, the VAT applied to charging an electric car varies based on where you plug it in.What is VAT on Recharging Costs?
With the growing use of EVs, understanding charging costs has become increasingly important. You need to know that VAT charged on EV charging electricity depends on where you charge your vehicle. The VAT on electric and hybrid cars is different when you charge them at home, business premises, and public charging stations.Charging At Public Station
Charging at public facilities is subject to VAT at the standard rate of 20%. Businesses should maintain accurate mileage and expense records to support any VAT recovery claims relating to business charging costs.Charging at Home
When you charge your electric vehicle at your home, the electricity supplied through the domestic electricity account is normally subject to VAT at 5%. This means charging at home is usually subject to 5% VAT. Furthermore, the VAT on electric and hybrid cars differs depending on who pays the electricity bill. For VAT-registered sole traders, VAT may be recoverable on the business proportion of home charging costs where accurate business mileage records are maintained. Businesses should seek professional advice before reclaiming VAT on home charging costs, as HMRC's rules depend on how the electricity is supplied and who incurs the cost.Charging at Business Premises
When you charge EVs at business premises, the electricity supplied is subject to VAT at the standard rate of 20%. Businesses may reclaim VAT on electricity used to charge company EVs for business use.What is Corporation Tax Relief on Hybrid Cars?
When understanding VAT on electric and hybrid cars, it is essential to know if there is corporation tax relief available on hybrid cars. Companies may claim Corporation Tax relief on qualifying expenditure relating to hybrid cars through capital allowances, although the level of relief depends on the vehicle's CO₂ emissions and the applicable capital allowance rules. Here, hybrid cars do not receive the same treatment as fully electric cars because these are zero-emission cars.Capital Allowances
The capital allowance treatment for hybrid cars depends on their CO₂ emissions and the tax rules in force at the time of purchase. However, new, unused zero-emission electric cars purchased by companies may qualify for a 100% first-year allowance, subject to the prevailing HMRC rules.Benefit-in-Kind (BiK)
Electric cars generally attract significantly lower Benefit-in-Kind (BiK) rates than hybrid or petrol and diesel vehicles, although the exact percentage depends on the vehicle and the relevant tax year.What is the Most Stolen EV?
Wondering which EV is at high risk of theft? Some electric vehicle models appear more frequently in theft statistics than others, although theft rates vary depending on vehicle popularity, security features, and insurance data. So, it is important for you to know that EVs are equipped with modern security systems, but some models can be targeted more frequently than others. However, the number stolen does not always mean the car is the easiest to steal. Theft statistics vary depending on the number of vehicles on the road, their popularity, security features, and the data source being used. It is advisable to consider features such as vehicle tracking systems, keyless-entry protection, and insurance costs when choosing an EV.Let’s Discuss Your Needs
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To Sum Up
Electric and hybrid vehicles offer many financial and environmental benefits. However, claiming VAT on electric and hybrid cars remains one of the most misunderstood aspects of vehicle ownership. VAT recovery depends on how the vehicle is used and not whether it is electric or hybrid. Businesses may recover VAT only where HMRC's conditions are met. For purchased cars, this generally requires exclusive business use with no private availability, while different rules apply to leased vehicles and running costs. Nevertheless, charging costs and leasing arrangements may offer additional opportunities for VAT recovery. Since HMRC’s rules can be complex, it is best to seek expert help. At MicroEntityAccount, we have qualified accountants who can help you maintain accurate records, keep all VAT invoices, and review your circumstances before making a claim.Disclaimer: All the information provided in this article is general in nature; it does not intend to disregard any of the professional advice.
