Electric Vehicle for Business: Accounting for Charging

Where to Start the Accounting Process?

At an company, an electric vehicle may be used by the director as well as by other employees where required for the performance of their official duties. Therefore, it is essential to approve internal policies by an order. These policies should specify the business purposes for which the electric vehicle may be used, where it may be charged, who bears the cost of electricity, and how the related expenses are allocated. If the director is allowed to use the vehicle for personal travel, the applicable conditions for such use should be determined, the procedure for recording it should be stipulated, as well as the deadlines for reimbursing charging costs. It is also advisable to designate persons responsible for verifying supporting documents and preparing a monthly report.

General Accounting Rules

Charging an electric vehicle  is not comparable to refuelling a vehicle. In accounting terms, fuel is treated as goods (inventory that must be recognized and written off when used, and its consumption monitored). By contrast, charging an electric vehicle with electricity is regarded as a service that is consumed directly at the time it is received. This is the position consistently taken by the tax authorities in their official guidance.

Therefore, regardless of how you charge your vehicle, the accounting treatment is considerably simpler than in the case of refuelling “conventional” vehicles: there is no need to recognize electricity separately, maintain inventory records, or write it off as is done for fuel. The cost of the electricity consumed is charged to the expenses of the relevant area of the company’s activities (depending on where the vehicle is used, such as administration, sales, etc.). The key task for the company is to ensure that the use of the vehicle in the course of its business activities is properly documented.

To account for electricity correctly, it is important to understand where the electric vehicle is charged and which source documents will be available. An electric vehicle may be charged in one of three ways: at the company’s premises using its own charging equipment or a standard power outlet; at a public EV charging station; or at the home of the responsible employee or the director.

Charging at the Company

Charging at the company is the most cost-effective option, particularly where the company operates several electric vehicles. The company’s own charging equipment records actual electricity consumption using a built-in meter or energy meter, while the supporting documentation consists of the monthly invoice and acceptance certificate issued by the electricity supplier, together with an internal usage log. The cost of the electricity consumed is recognized as an expense of the reporting period at month-end (Dr 23, 91, 92, 93, 94 – Cr 631), and no separate write-off is required. Where a duly registered VAT invoice is available, the company may also recognize an input VAT credit. According to the tax authorities’ guidance, such charging may be treated as consumption for the company’s own needs. Therefore, the main risk in this case is the absence of proper internal documentation, which may lead to business trips being reclassified as personal use, resulting in additional assessments of personal income tax, military levy, and compensatory VAT liabilities pursuant to Clause 198 (5) of the Tax Code of Ukraine.

Charging at a Public Charging Station

Charging at a public charging station involves monitoring through the supplier’s accounting system. Supporting documents include a source document (invoice or acceptance certificate) containing details of charging sessions and fiscal receipts issued through a fiscal cash register or software-based cash register, which the accountable employee attaches to the expense report. Based on these documents, the company pays for the electricity consumed and the charging station rental services and records such costs as expenses of the activity in which the vehicle is used (Dr 23, 91, 92, 93, 94 – Cr 372 or 631). Since this constitutes the purchase of a service, fuel consumption standards do not apply. The main risk is the possible loss of supporting payment documents by the driver, which would make it impossible for the accountable employee to substantiate the expenses incurred.

Charging at Home

Where an employee or director charges a vehicle at home, reimbursement is calculated based on the standard residential electricity tariff. This is significantly more cost-effective than a commercial tariff. The tax authorities are well aware of this too. Therefore, the electricity consumed for charging the vehicle must be distinguished from household consumption. There are two possible options: installing a separate verified electricity meter/energy meter directly on the outlet or circuit used to charge the vehicle; or using a smart charging device (with a mobile application for the vehicle or charging station) that generates a report for each charging session (date, time, and number of kWh consumed).

Accordingly, the risk associated with this method is that the tax authorities may treat the reimbursement of home charging expenses as an additional benefit subject to personal income tax (18%), military levy, and USC (Unified Social Contribution). To avoid such treatment, it is necessary to establish a proper evidentiary basis to support the tax-exempt treatment:

·      prepare a dedicated internal policy at the company;

·      maintain evidence of business mileage (a trip log or vehicle logbook recording odometer readings and distinguishing between mileage driven for business purposes and mileage driven for personal purposes);

·      retain recorded data from the charging device together with receipts confirming payment of the electricity bill.

Since the electricity bill is usually issued in the following month, the internal policies should specify the deadlines for submitting supporting documents and the timing of reimbursement. For example, reports and supporting documents may be required to be submitted within the first two weeks of the month following the reporting month, with reimbursement to be paid within two weeks after submission of the documents. Reimbursement to the employee is recorded in the accounting records based on the employee’s application, the device report, proof of payment of the electricity bill, and the calculation of the business-use portion of travel (Dr 91, 92, 93, 94 – Cr 372 or 685).

Is Separate Record-Keeping Mandatory??

Current legislation does not prescribe any mandatory form or separate requirement specifically for recording charging activities. Nevertheless, companies generally maintain internal records in a format of their own choosing for internal control purposes. This approach is well justified. The existence of such records makes it possible to demonstrate that the vehicle is in fact being used in the course of the company’s business activities. As a result, the company may lawfully charge depreciation, avoid recognizing compensatory VAT liabilities under Clause 5 of Article 198 of the Tax Code of Ukraine, and substantiate that the vehicle’s use cannot be reclassified during a tax audit as an “additional benefit” granted to the individual using the vehicle. Regardless of the format chosen (a charging log, trip log, or vehicle logbook in which liters are replaced with kWh), it is sufficient for the company to record a standard set of details, including the date of the trip or charging session, the make and registration number of the vehicle, the route taken and odometer reading (mileage), the name of the person driving or charging the vehicle, and the volume of electricity consumed in kWh.

Accounting Entries

Regardless of the charging method used, the amount of electricity consumed is booked in the accounting records, based on the invoices received, in the relevant expense accounts: Dr 23, 91, 92, 93, 94 – Cr 631 (or Cr 372 in the case of reimbursement to an employee). Some companies initially recognize electricity costs as prepaid expenses (Dr 39) and subsequently, based on the actual consumption of the charging resource, recognize the corresponding expenses (Dr 23, 91, 92, 93, 94 – Cr 39). The selected accounting approach should be expressly stipulated in the accounting policy order and supported by appropriate expense controls. If the business entity is registered as a VAT payer, it is entitled to claim an input VAT credit on the basis of a tax invoice issued by the supplier and duly registered in the Unified Register of Tax Invoices. In the accounting records, this is reflected through the entries Dr 6442 – Cr 6441 and Dr 6441/VAT – Cr 6442.

Finally, it should be noted that no regulatory act establishes standard electricity consumption rates for electric vehicles. Consumption depends entirely on the technical specifications provided by the manufacturer for each particular vehicle model. For practical purposes, it is also advisable to calculate an indicative electricity consumption rate per 100 kilometers based on the battery specifications and the manufacturer’s data, while taking into account the gradual reduction of battery capacity over time.

A Quick Step-by-Step Guide  

To organize accounting for an electric vehicle properly, a company should follow a clear sequence of steps: first, approve internal rules governing the use of electric vehicles by managerial order; next, identify and formally designate the permissible charging locations (on the company’s premises, at EV charging stations, or at home); then establish a comprehensive list of supporting documents required for each charging scenario; choose a convenient method for recording vehicle use (a logbook or vehicle logbook) with mileage and kWh consumption data; and finally, define a clear procedure and timeline for reimbursing employees’ expenses.

Natalia Shcherbak, Accounting and Tax Consultant