Is higher tax coming to home charging?
As fuel duty income declines, the Government has not ruled anything out
Hello, I’m Tom Riley, and welcome back to The Fast Charge, a British EV newsletter.
In today’s edition… Want fair VAT rates for EV charging? Be careful what you wish for, as the Treasury doesn’t rule out raising it on home charging.
Further down… Only a few quick EV stories today.
As always, if you have any comments or feedback, please reply to this email or use the links below.
Treasury doesn’t rule out increasing tax on home charging
Context… Whether you believe EVs are put together by forced labour. Or sit on the road secretly plotting to blow up. There is no denying by anyone that they are extremely cheap to run if you can access your home supply. The potential savings from EV ownership this way can save drivers up to £800 annually, according to recent analysis in April by Cornwall Insight.
And it gets better… Because if you do have a driveway, not only can smart charging help you lower your costs, but you can also, depending on your situation, sell your banked electricity back to the grid at peak time. Moreover, the cherry on top is that, as you are using your domestic supply, the VAT you’re charged by HMRC is the reduced rate of 5%, not the standard 20%. Boom!
However… While these savings have been great for businesses persuading people to buy into EVs, it’s not available to all EV owners. For the estimated third of British drivers without the ability to use their home supply - as they lack off-street parking - they not only have to pay for commercial public charging rates. But they also get slapped with the standard 20% rate of VAT. In simple terms, there’s an inequality, and one that often means drivers living in flats or cities pay significantly more than those living in larger homes with a driveway.
😠 It's because of this tax disparity that, ever since Boris Johnson brought the banning of ICE vehicles forward to 2030, a multitude of lobby groups have been asking to get the VAT rate on public chargers dropped from 20% to 5% - so it’s equal to those with driveways.
But… After four years of campaigning, success on this policy ask is no closer to a win. And, in fact, it now seems the government may go the opposite way.
NEW… Based on conversations with several industry sources, it’s believed that given how ‘smart’ home chargers are now getting, HM Treasury could be exploring applying a tax (or duty) on home charging. I’m told this would ‘level the playing field’ between home and public and also help HMT address its soon-to-be dwindling billions from fuel duty, which even the Office of Budget Responsibility has pointed out as reducing in part due to the success of EVs.
Government’s response…
Given that a policy change of this nature would go down like a lead balloon, I asked HM Treasury whether this idea was being explored and if they could rule it out.
In response, a Government spokesperson did not rule it out. Instead, the Treasury explained they were keeping the VAT variation under review. They also pressed that reducing the VAT rate on public chargers (from 20% to 5%) would put additional pressure on public finances, and that they wanted to take a ‘balanced’ approach to ensure value for the taxpayer.
In a statement, a Government spokesperson told The Fast Charge: “As part of our Clean Energy Plan for Change mission, we are committed to delivering the charging infrastructure the country needs for electric vehicles, and we will consider how the planning system can further support the rollout as needed.
“We recognise most drivers want the convenience of charging at home, which is why we have published guidance for local authorities on cross-pavement solutions and offer a grant to households with on-street parking.”
🤨 When I received this response, I told the Treasury spokesperson it would go down badly, but they chose not to respond further.
Reaction…
In response to this story, Quentin Willson, the force behind the FairCharge campaign on lowering VAT on public charging, said:
“Raising the VAT on home EV charging from 5% to 20% would deal a mortal blow to EV adoption and destroy the credibility of government environmental policy. Over 80% of EV drivers charge at home using renewable electricity. Such a move would be astonishingly short sighted… Fuel duty receipts are down because people are driving less and buying fewer cars. EVs still represent a tiny percentage of the vehicle population. This idea is so counter intuitive it feels like April Fool's.”
😮 I’m sure Quentin won’t be the only person to share anger at the prospect of the government weakening one of the EV transition’s greatest pull factors. However, not everyone I’ve spoken to is surprised…
One senior EV executive told me they’re not against an increase at home. “I can see why the government would look at increasing VAT on home charging and see that as more likely than them dropping the 20% VAT on public charging.” They explained they’d love charging to be cheaper, but the key for them is “fairness between home and public”.
From my perspective… having always lived without a driveway, it is difficult not to envy those with one. If I’m having to pay more tax to drive my car, especially in a city where clean air is greatly needed, I am not against those with homes having to pay what I do - we all use the roads. And if I were the Treasury, about now would be the time I’d look at making a change like this, rather than waiting until the number of EV owners swells so much that an increase would be politically impossible.
Additionally… As HMRC reminded me this week, the current VAT on charging policy was not designed with EVs in mind. It might make sense for HMT to review it, especially as similar reviews are ongoing around the possibility of zonal pricing and standing charges.
How could it work in principle?
It strikes me that HMT would have two options if they did want to tap into taking additional revenue on people’s home charging.
1. They could kick up the 5% VAT rate to 20% on all EV charging. However, that might be fiddly to do in reality and mean those using ‘dumb’ devices fall through a gap. Or, maybe worse, push people away from using smart chargers.
2. Perhaps more likely, HMT could look at deploying a sort of duty. This could potentially be done by applying it to tariffs sold by energy providers to EV households. Like paying at a fuel pump, it could certainly be less obvious to most homeowners what is tax and what isn’t unless they look deeply at their bills.
🤔 It feels very dirty writing the above, though I do understand why officials may be looking at this area. I understand ministers would rather not go down the ‘road pricing’ route - and probably don’t have the political capital to do so - but are under pressure to show their accountants how they’ll fill the decreasing income from fuel. It’s a tough one.
The only positive I take from the debates I’ve had with individuals is that, even with 15% more added onto smart home charging costs, given the costs are so low to start with, we’re not exactly talking of adding thousands to people’s bills. More likely, a fiver per month for those using an EV tariff. No rise is good, but by comparison, Zapmap estimates those without home charging are estimated to be paying £85m extra in VAT this year due to the inequality.
What happens next?
Based on previous policy whispers I’ve written of, one of three things will now happen… Behind door one, questions from industry go into government with a flurry, and the Treasury updates its position, ruling this notion out entirely. Fine by me! Behind door two, queries go into government, but it’s DfT or OZEV that tells people it’s not being considered. To me, unless it’s HMT ruling it out, it hasn’t been. Or, behind door three, the Government doesn’t change its position and reiterates what it told me.
Only time will tell if the rumour mill is true. 👉 If you have any thoughts on this, do drop me a note with your views.
Quick EV hits…
📈 The IEA has published its latest EV Outlook revealing that, despite significant uncertainties, EV market share is on course to exceed 40% by 2030 globally. Read more.
📊 To this point, over 2 million used cars changed hands in Q1 of this year. And nearly 66,000 of those were fully electric. Read more.
🇮🇳 The UK’s trade deal with India will see automotive export tariffs slashed from 100% to 10%. Read more.
🇺🇸 Meanwhile, the trade deal with the US will also see car export tariffs reduced. Check out what it means for the EV sector here.
🏴 Last week, the Scottish Government’s infrastructure body, the Scottish Futures Trust, published its main priorities for between 2025 to 2030. This includes accelerating EV charging. Read more.
🚨 Finally… Another notice that a paywall cometh in June - meaning only two more editions will be free. If you are a company or agency, I’m happy to discuss to ensure you and your people can keep access at a price that doesn’t blow your bank. You should get in touch with me before June. As a reminder, if I can’t make the economics of this newsletter work, I’ll need to rethink whether I keep doing it, so your support is incredibly important!
There is still a 5p discount on fuel duty.
Rolling that off over a year would be sensible.
Separately, there should be a business opening for attended charging stations, CF petrol stations occasionally are.
Nice work, Tom! Sounds like VAT equalisation maybe on the cards then... but increasing inline with standard fuel and public charging to 20%, rather than coming down to match current 5% (discounted?) home charging rate as many had hoped and lobbied for.
Some will argue that it would be fairer if EV drivers/homeowners fortunate to have off-street parking paid standard VAT rate same as other drivers - which sounds affordable if approx £5 p/month as you suggest - and could help to replace lost revenue from fuel as more drivers switch to electric.
The Government response to the Lords report 'EV Strategy - Rapid recharge needed' last year outlined the reasons the Gov disagreed with the Lords recommendation to explore options to equalise VAT to 5%, see recommendation 33, page 15:
https://committees.parliament.uk/publications/44339/documents/220433/default/
Obviously would loose a key selling point... but think people got over and accepted fairness in recent car tax discount/increase... and plenty of other benefits of driving electric and healthy used EV market making more accessible now too : )