How is Instavolt only charging 5% VAT?

The latest news from the world of EV

Good morning and welcome back to The Fast Charge, the electric motoring newsletter. My name is Tom Riley.

Apologies this edition is very late. As I mentioned last week, I’ve been out of action but I was released by the nurse last night.

Lots of news today. From Tesla’s recent results to the new very attractive Ioniq 5. I also have a long-read looking at charging operators and VAT rates 😍

As ever, do drop me an email at tomrileylondon@gmail.com if you have any feedback, questions or comments.

In the news…

LOOKING UP: Tesla reported on its first-quarter results yesterday and things are looking good for the carmaker. Elon Musk was able to show that revenue had risen by 74% to $10.39 billion - beating expectations. It’s been able to make so many gains in the last year by the rising demand for electric cars and because the company pivoted quickly to alternative components (namely new microcontrollers) as the semiconductor shortage hit. Tesla is now the world’s most valuable car manufacturer based on its stock price. The company believes its vehicle deliveries will rise by 50% annually for the next few years. Read more on Investopedia.

TO THE MOON 🚀: Alongside Tesla’s results, the company also revealed that it’s made $101 million profit from selling some of its Bitcoins. You may recall back in February the company purchased $1.5 billion Bitcoin.

OVER 1,000: Westminster Council has become the first authority to install more than 1,000 charging points for its residents. The on-street charging stations, which are predominantly built into lamp posts, have been installed in partnership with Siemens. The speeds vary from around 3kW to faster 50kW stations. It’s a great achievement for a borough where few motorists have a driveway and hopefully, more councils follow behind. Read more on London Post.

BUT! Despite this great milestone, it seems there is still a trend towards using your own electricity to charge a car - meaning trailing a cable over the pavement. It is much cheaper than using a public point but there are dangers. Radio 4’s You and Yours covered this in an episode last week. You can listen here. It involved representatives from a disability charity and the EV Association for England. The long and the short of it is, we need more on-street charger and for those pavement trenches to take off.

GOING 100%: Last week, Honda’s CEO announced the manufacturer would be aiming to achieve 100% electric vehicle sales by 2040 - this should be 40% by 2030. However, Honda believes that ‘electrification’ will be a combination of battery-electric vehicles AND fuel cell electric vehicles. Meaning they still think hydrogen could have its day in the consumer market. Most pundits are not convinced by this. The only way hydrogen will take off is with commercial vehicles. My own view is, for inventors of ‘lean manufacturing’ the Japanese really need to wake up and get on board with EVs. 40% by 2030 is slow.

NORDIC VOLTS: The charging company Mer, which is owned by utility company Statkraft, based in Norway, is due to launch in the UK. They will target parts of the UK that are currently underserved by providers. Mer sources all of the energy for its charge points from 100% renewable sources and is already working with several local authorities across the UK, according to Current News. Read more.

RULE BRITANNIA: The UK has officially overtaken the french as being the second-best place in Europe for electric car sales - Germany is the first. In the UK, 31,800 battery-electric cars were sold in the first three months of this year compared with 30,500 in France. In total, battery EV’s accounted for 7.5% of all car sales in the UK during the same period. A rising figure which is thought to only increase throughout 2021. Read more in The Guardian.

ICONIC IONIQ: Britain has got its first in-depth look at Hyundai’s new Ioniq 5 this week. The supremely modern looking crossover EV has received widespread praise for its sexy appearance. That’s because it actually looks like its concept design - it was originally called the 45 concept.

Specs haven’t been released yet but the guesswork is that it will have a range of 250+ miles, a top speed of 115mph and do 0-62 in 5.2 seconds. However, the cost will be £44,000. That’s £3,000 more than an ID.4 that will do 60 miles more in range. But the design and size could make up for it. I must say, from the images, it is quite pretty. I’m not sure about the serrated edge on the front bonnet - it kind of looks like an upturned hull - but I like that they’ve not messed around with a fake grill. And square lighting is a bit bonkers and childish, however, in my mind that’s brilliant. The only gimmick I’m not sure about is the indicator. When you use it in the Ioniq 5, a live video pops up on the dash showing the blindspot. While clever, perhaps a bit annoying and surely nothing ever beats actually checking? The Fully Charged Show has a good summary 👇

RECYCLING BATTERIES: The BBC have done a report on what will happen to EV batteries once they are worn out. It’s not really anything new to most EV-ers but does recap over the need for better recycling and what the current situation is - only around 5% of lithium-ion batteries are reused. Read it here.

How is Instavolt only charging 5% VAT?

Tax is not really a sexy subject. Nobody likes it, not even accountants. No one.

However, given it’s one of those things that everyone has to encounter - whether you are avoiding it or paying for it - it’s important that people can understand the rules.

On the face of it, VAT is one of the most simple and easy to get taxes. It’s just a 20% tax on sales. And sometimes the rules say it’s only 5% or none at all. Most consumers hardly notice VAT, it’s just a part of life.

But, VAT is also perhaps one of the peskiest taxes given how embedded it is into consumer products. How could one forget the infamous Jaffa Cake argument in the Supreme Court!

When it comes to electric charging, VAT is a bit controversial. According to HMRC,

“Electricity that is supplied for domestic, non-business and charity use attracts reduced rate (5%) VAT, while electricity that is supplied for business use is subject to standard rate VAT (20%).”

In essence, as HMRC puts it:

“Electricity that is used to recharge an electric vehicle at home, therefore, attracts the reduced rate of VAT (5%). Electric vehicles that are recharged at work will attract 20% VAT on the electricity used.”

It’s this view by HMRC that has meant major charging networks have been applying 20% VAT on the cost of using their public chargers. This has angered many who believe it is making EV ownership more expensive for those without off-street parking - and therefore relying on the public network.

Ubitricity’s Managing Director, Daniel Bentham, complained recently about the issue: “Our customers have to pay a higher rate of tax by charging on the street than they would do at home or work.”

However, the charging operator Instavolt, one of the UK’s biggest networks which is widely popular for its rapid DC chargers and reliability, are only applying the reduced rate (5%) of VAT at its stations. 

How are they doing that? And why can’t other operators do the same?

It’s an important question because it could cut costs for EV drivers if there is an accepted way to reduce VAT. It also begs the question, are Instavolt getting a competitive advantage because of this reduction? And, is it even legal?

I’ve tried extremely hard over the last few weeks to work this one out. Sadly, Instavolt themselves want to keep a lid on it. When I asked a representative for the company what rate they charge and why I was simply told: “I’m unable to comment on Instavolt’s financial information.” Which was helpful.

It seems others in the EV community have for a long time tried to work this out too. In 2019, one Twitter user debating with another suggested:

“I think the way that instavolt works is they install the chargers for free, and pay rental on the spaces they use, this allows them to charge vat at 5%.” 

This I believe is a good assumption but it’s perhaps not the whole story. 

From everything I’ve read, I think it’s likely that Instavolt is using a little unknown (nor understood) loophole.

It’s called the fuel ‘de minimis’ exemption. Essentially, it says that VAT can be applied at a reduced rate if the supply used is below a certain quantity each day. The GOV.UK guidance reads:

“Supplies of not more than an average rate of 33 kilowatt hours per day, 1,000 kilowatt hours per month, of electricity to one customer at any one of the customer’s premises are subject to VAT at the reduced rate. This applies whether the bill is based on a meter reading by either you or your customer or on an estimate.”

Presumably, Instavolt is taking the view that customers are not ever going above this average each day or month and, therefore, they can apply a reduced rate.

However, if that is the case, why aren’t more operators using this rule? 

One thought I had was, given most charging points are being installed by local authorities in partnership with operators, could it be the councils are the ones who are insisting on VAT being charged at the standard rate? Maybe because it’s easier to process, helps cash flow and because the points are jointly owned?

Whereas, Instavolt is a totally private network. Site owners, such as local authorities, can only get Instavolt chargers installed if the land is leased to them - as they cover the full costs. This approach presumably gives them greater autonomy over their tax strategy.

If it is the latter or even if it’s not, one thing is clear, Instavolt is charging 15% less VAT than everyone else. Either other operators should pivot and also reduce the costs for consumers. Or, Instavolt is doing something supremely funky and surely it needs looking into.

By Tom Riley

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