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Government could drop VAT on all electric vehicles to spark growth says AA President

Updated: Jan 14, 2020

The government should learn from Norway and cut VAT tax to zero in a bid accelerate the electric car market in the UK, says AA president.

According to new research by the motorist and breakdown firm the AA, 61% of motorists surveyed said they would be more encouraged to purchase an electric vehicle (EV) if the VAT was dropped to zero.

At present, VAT is 20% of the car’s value. With EVs costing more than internal combustion vehicles, buyers are currently paying more tax to make the move to cleaner vehicles.

Taxi drivers have long debated whether or not they should be paying VAT, especially those offering Wheelchair Accessible Vehicles (WAV).

Generally, VAT has to be paid on all goods and services. However, in certain circumstances there’s relief from paying VAT on a limited range of goods and services for disabled people.

For some time there has been VAT relief for those purchasing a vehicle adapted to carry wheelchairs. According to HMRC, individuals purchasing a vehicle on behalf of a disabled wheelchair user can claim relief if the supply of a ‘qualifying motor vehicle’ has been: 

  • designed to enable the disabled wheelchair user to travel in it, or

  • substantially and permanently adapted to enable the disabled wheelchair user to travel in it and the adaptation is necessary to enable that person to travel in the vehicle.

Some might think that on paper taxi drivers should, or could, be offered tax relief on WAV taxis. This would knock over £9,000 off the new LEVC TX taxi and nearly £11,000 once the EV grant ends.

Image credit: Dynamo Taxi

However under EU rules, the question around VAT exemption for taxis was quickly put to bed following a question put forward by the then Parliamentary Under Secretary of State at the Department for Transport, Andrew Jones MP, in October 2016.

Carly Nimmo, of VAT & International Excise at HM Treasury, replied on the MP’s behalf saying: “There is unfortunately no provision within the EU VAT rules to introduce a zero rate or exemption on the purchase of taxis and therefore the government cannot remove the VAT on such purchases.

“While the UK remains a member of the EU, we will continue to meet our obligations, including on the agreed rules on the application of VAT.” 

With Brexit looming on 31 January, the debate could spark into life again, especially if the government wishes to see more wheelchair accessible electric taxis whizzing around the UK.

Before last month’s General Election, Edmund King, president of the AA, supported the notion of removing VAT for all EVs, writing: “In the UK the expansion of Ultra Low Emission Zones has the potential to render up to one million older, mainly diesel, cars redundant. So we need measures to speed up the supply of EVs in the used car market.

“There are a couple of promises the political parties could make to speed this up:

“Cut VAT to zero on all new EVs for five years, give longer-term commitments to lower company car tax for EVs and give more generous and longer-term grants for home chargers.

“This would accelerate the market the market and certainly get my vote.”

In Norway they have set a very ambitious target which would see all new cars sold by 2025 zero emissions only. Multiple incentives have been put in place to encourage the Norwegian public to move to electric. These include:

  • No purchase or import taxes

  • Zero VAT rather than normal 25%

  • No annual road tax

  • 50% off ferries and tolls from 2018

  • Free access to bus lanes

  • Company car tax reduced

  • Scrappage schemes for vans

  • Zero rate VAT on leasing EVs.

Norway are now one of the world's biggest electric vehicle markets with the highest concentration of EVs anywhere in the world per capita.

Header image credit: LEVC

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