Revving Up the EV Market: The Role of VAT Reforms

The UK new car market witnessed a significant surge in June, with sales jumping by a robust 25.8% year-on-year, according to a recent report by the Society of Motor Manufacturers and Traders (SMMT). This increase was spurred by a marked rise in demand for electric vehicles (EVs) from businesses and fleet buyers, highlighting the growing appeal of sustainable transportation.

In June alone, new car sales ascended to 177,266 units, marking the 11th consecutive month of growth. Despite the steady rise, these figures remain below pre-pandemic levels, suggesting that there is still ample room for growth in the market. However, the most noteworthy increase was in the registration of battery electric vehicles (BEVs), which soared by 39.4% in the same period.

The Driving Force Behind the Boom in BEVs

The growth in BEV demand has been particularly pronounced among businesses and fleets, as they avail themselves of the attractive fiscal incentives on offer. During the first half of 2023, nearly a million new cars hit the UK roads. Among these, a record 152,968 were BEVs, marking a striking thirteen-fold increase compared to the same period in 2019.

The uptick in EV interest is a positive sign for the sustainability of UK transportation. However, concerns persist regarding the VAT policies on public EV charging, which could pose a hurdle to wider adoption.

Tax Inequities: A Speed Bump in the EV Adoption Journey

Current VAT policies present a significant obstacle to further adoption of EVs. Home-charging EV owners benefit from a reduced VAT rate of 5%, while those reliant on public charging networks pay the standard 20% VAT rate. Mike Hawes, CEO of the SMMT, has called this disparity “unfair”, arguing that it risks delaying wider uptake of EVs.

How Adsum is Powering Up the EV Market

At Adsum, we have firsthand experience helping EV companies navigate tax such as Onto, a fast-growing, venture capital-backed car subscription business. Onto faced a challenge with reclaiming VAT on their substantial monthly fleet purchases of EVs. With VAT costs reaching up to £2 million per month, they encountered a tedious documentation process and an unaffordable time lag in obtaining the money back through traditional financial arrangements.

Adsum provided an innovative solution by automating the VAT calculation and advancing the funds they were owed. We streamlined the legal documentation process, ensuring it didn’t impede their existing finance arrangements. This resulted in freeing up to £1.25 million in cash flow for Onto, allowing them to reinvest in their subscription app service. “This certainly gives us an edge over other players in the market because removing the lag between our expenses and HMRC paying makes a world of a difference” – Peter Phillips, CFO at Onto.

Moreover, our automated system also identified an opportunity for Onto to secure an additional £750k in R&D tax credits, providing another avenue for advanced cash flow.

Levelling the Playing Field with VAT Reforms

The SMMT has called for a reduction in VAT on public EV charging, as they believe this could incentivise more individuals to own EVs and make the proposition fairer.

Gavin Murray, Hive and EV Director at British Gas, has echoed these sentiments, emphasising the need for broader stakeholder collaboration. This ensures that no one is excluded from EV ownership and that the transition to EVs is as smooth as possible for consumers.

The trajectory of the UK’s EV market growth is promising. However, maintaining this momentum and achieving the nation’s climate goals will require equitable tax policies. VAT reforms could not only encourage wider adoption of EVs but also create a more inclusive and sustainable future for the UK. By combining tax specialist services with strategic funding, Adsum is able to play a key role in navigating these challenges and accelerating the UK’s drive towards a green transportation revolution.