Treasury rejected ministers’ plan to cut VAT on public EV charging to 5% | Electric, hybrid and low-emission cars
Government officials considered reducing VAT on electricity used in public electric vehicle chargers from 20 per cent to 5 per cent in the last budget, but the Treasury under Chancellor Rachel Reeves rejected the proposal due to disagreements between departments.
Department for Transport officials have encouraged electric vehicle charging point operators to write to the Treasury to explain how they would respond to the VAT cut, according to three industry sources. Charging companies said they would pass on the tax cuts to consumers.
DfT ministers are understood to support reducing VAT on public charges at a time when households are under pressure due to the cost of living. The episode is directed by Heidi Alexander.
The government is coming under increasing pressure to reduce VAT on electricity for public charging due to a perceived injustice between those who can charge at home and those without off-street parking.
Those charging at home pay the 5% domestic rate for their electricity, but HMRC applies the standard 20% rate for public charging. Critics have described the difference as a “curb tax” that hinders the transition to electric vehicles, especially in urban areas.
But the Treasury has resisted the change due to concerns about the cost of future lost VAT, which will rise as the number of electric vehicles increases and fuel tax revenues from petrol and diesel vehicles decrease.
VAT inequality will be a key part of the government’s review of public spending due to be announced in the autumn.
However, the Treasury’s hand may be forced. In March, a tax court in London ruled that the rate should have been 5% from the start because of a misapplication of the law. HMRC is appealing the decision, but many experts said they were doubtful it would succeed.
Dan Caesar, founder of Electric Vehicles UK, said: “VAT on public charging should be abolished, making EVs cheaper for everyone. The fact that HMRC opposes this, despite the best efforts of other ministries, shows how confused the government is.”
“At the same time, the majority of British citizens can still benefit from much cheaper cars and the government should not be afraid to shout this from the rooftops.”
Leveling VAT on public charging is likely to create an incentive for more people to switch to electric cars at a time when other policies from the Labor government are slowing this down. Reeves said in November the government would introduce a 3p per mile charge for electric cars from 2028 to replace fuel tax revenue.
The government is also considering further weakening the zero-emission vehicle (ZEV) mandate, which would require manufacturers to sell an increasing proportion of electric cars. Charging companies have reacted angrily to the prospect of fewer electric cars being connected to charging infrastructures.
A government spokesman said: “The government is accelerating the EV transition by saving drivers up to £3,750 on a new car, already benefiting more than 95,000 people, and investing over £7.5bn in the UK electric vehicle sector.
“We are also examining the cost of public EV charging, looking at the impact of energy prices, wider factors contributing to the cost and options for consumers to reduce these costs.”
