VAT at 5% not 20% on public vehicle charging
The FTT found that a public charging point operator was entitled to charge VAT at the reduced rate of 5% on its electric-vehicle charging services, despite HMRC’s guidance to the contrary.
As the use of electric vehicles (EVs) has grown, there has been some confusion as to how VAT should be applied to supplies at public charging points. HMRC’s guidance at para 3.2.2 of VAT Notice 701/19 states that the use of public charging points will always be standard rated for VAT, but this may need to change now.
Charge My Street Limited (CMS) operates public charging points and had submitted its VAT returns on the basis that its supplies were standard rated. However, it subsequently submitted amended returns, instead treating the supplies as being at the reduced rate of 5%. HMRC initially made the repayment but subsequently raised an assessment to claw the amount back.
CMS appealed the assessment to the first tier tribunal (FTT).
Domestic v commercial use
The case centred around the interpretation of VATA 94 Sch 7A Group 1, which allows a supply of fuel/power to be reduced rate if made for a “qualifying use”. Note 3 states that qualifying use includes domestic use, which note 5(g) confirms includes a supply of electricity “to a person at any premises… not provided at a rate exceeding 1000 kilowatt hours a month”.
CMS believed it met this condition, supplying as it did electricity to individual persons, with each person receiving no more than 1,000kWh/month.
HMRC, however, stood by its guidance and argued that CMS had misinterpreted the wording of note 5(g). Specifically, it believed that 5(g) required the supply to be made to the recipient’s premises, with CMS’s site being neither the customer’s premises nor in fact likely premises at all, as “premises” requires a building. It also believed that the 1,000kWh/month should be pro-rated to the length of the supply, which for CMS was often ad hoc and so a single day equivalent of 33kWh should be used.
The identity of the customer was also disputed, particularly where a third-party payment app was used.
All parties agreed that the legislative wording needed to be read in light of its context and purpose to find its meaning.
The FTT considered that note 5(g) contained two requirements – that the supply was “to a person at any premises” and that the supply, plus other supplies to that person “did not exceed 1,000kWh/month”.
It firstly found no implication in the wording of 5(g), contrary to HMRC’s arguments, that the recipient must have some connection with the premises in question, nor that premises should only include buildings, in fact being reassured of the opposite based on the wording in the surrounding sub-parts of Note 5.
With regard to the second requirement, it found no reason to accept HMRC’s interpretation that the 1,000kWh should be apportioned where the period of engagement is less than a month, finding that an “ad hoc” supply should be treated as for a continuous supply when considering the limit. This was despite noting that a savvy customer could, in theory, obtain multiple reduced-rate amounts by changing supplier during the month.
Finally, the FTT dismissed HMRC’s claim that CMS’s interpretation breached EU law, as note 5 has existed since 1989 and has never been challenged by the Commission/EU.
Who is the recipient?
The FTT then considered who CMS was supplying. For direct chip-and-pin sales there was no dispute. However many drivers used various apps to charge their vehicles. One of these apps was Fuuse, which was co-owned by one of CMS’s directors.
The FTT found that Fuuse was merely a payment interface and so supplies through it were made by CMS to the driver. However, it was not able to conclude the same for the other apps and found that these acted as principals.
As CMS believed its supplies to these third-party apps each fell below the 1,000kWh/month, this did not however change the overall position.
The appeal was allowed in principle.
Going forwards
The FTT’s findings will be of great interest to any entity supplying charging services for electric vehicles, whether or not they were following HMRC’s guidance in notice 701/19. Notably the finding was in principle only, therefore the FTT did not consider whether all supplies to individual persons/via each third-party app were below the de minimis as CMS claimed.
It is likely that HMRC will appeal this further, given the significance of the decision for taxpayers generally. It may also wish to dispute the FTT’s findings specifically for CMS regarding Fuuse, as if it was in fact acting as principal, CMS appears to concede those supplies may breach the 1,000kWh/month.
It is not immediately clear from the case report, why HMRC did not raise the argument of unjust enrichment where the customers could not practicably be repaid for the VAT overcharged, the repayment therefore representing a cash bonus for CMS. We would have anticipated this at the time of the original repayment.
For now, we recommend that affected businesses raise protective VAT reclaims. We can handle this process.