The public EV charging VAT cut to 5%: what it means for drivers and employers

For years, one of the clearest unfairnesses in UK EV charging has been the VAT gap. Electricity delivered to your home is charged at 5% VAT. Electricity delivered through a public charger has typically been charged at the full 20% rate. That difference has become one of the most argued-over details in EV policy, because it directly penalises the drivers with the least choice about where they charge.

The VAT gap explained

• Domestic electricity, including what you use to charge an EV on your own driveway, is taxed at 5% VAT
• Public charging, at motorway services, car parks, on-street points and workplace chargers open to the public, has generally been taxed at 20% VAT

That 15 percentage point gap adds a real cost. On a public rapid session costing 65p per kWh including VAT, roughly 11p of that is VAT, compared with around 1.5p on the equivalent home charging cost.

Why this matters more for some drivers than others

Roughly nine million UK households have no off-street parking and cannot install a home charger, so they rely on public charging for all or most of their needs. Those drivers pay the higher VAT rate on every kWh, while driveway owners charging at home pay the lower rate on the vast majority of theirs. In effect, the group least able to access cheap charging has also been paying the highest rate of tax on it.

Campaigners, including groups such as FairCharge, have pushed for years to align public charging VAT with the domestic rate, arguing it is both a fairness issue and a barrier to EV adoption for exactly the households the transition needs to reach.

What a cut to 5% would change

If public charging VAT were aligned with domestic rates, the effect would be immediate and visible on every receipt:

• A public rapid session at 65p per kWh including 20% VAT would fall to roughly 57p per kWh at 5% VAT, all else being equal
• On 10,000 miles a year of public-only charging, that could save a driver in the region of £150 to £200 annually
• It would narrow, though not eliminate, the cost gap between driveway and non-driveway EV drivers

It is worth noting this depends on operators passing the saving through in full, which is not guaranteed, and rates can vary by network regardless of the VAT treatment.

What has actually changed so far

Government policy on this has moved in stages rather than a single clean cut, and different charger types and settings can be treated differently under existing rules. Employers and drivers should check current guidance rather than assume a blanket rate applies everywhere, since the detail matters for compliance as well as cost. For business mileage reimbursement specifically, HMRC's guidance and rates are handled separately by our Reimburse product.

What employers and drivers can do regardless of VAT policy

Waiting for tax policy to close the gap is not a strategy. Two things make a bigger and more immediate difference:

• Give employees access to workplace charging where possible, which sidesteps public rates entirely for part of their mileage
• Offer EV charging salary sacrifice, which cuts the real cost of charging by 20 to 50% regardless of the VAT rate, because it works on income tax and National Insurance rather than VAT

On the same £1,500 a year public charging example, a higher rate taxpayer saving 42% through salary sacrifice saves roughly £630 a year, considerably more than a VAT cut alone would deliver, and available today rather than dependent on future legislation. You can see the effect on your own numbers using our savings calculator.

Next steps

If you want to give your EV drivers a meaningful saving on charging costs without waiting on policy change, book a demo and we will show you what The Charge Scheme could save your workforce this year.