Processing Government Grants for Electric Vehicles

Government grants for electric vehicles (EVs) are designed to support the transition to low-emission transport by reducing the purchase cost of qualifying EVs. When processing these grants within your vehicle sales and purchase workflows, it is critical to follow the correct accounting treatment. This ensures financial compliance, accurate VAT and profit/loss calculations, and proper representation on customer-facing documents like invoices.

This guide outlines the recommended steps for handling EV government grants, both when selling and purchasing vehicles. It covers how to structure subsidies, treat invoice values, handle finance cases, and manage accounting entries when grants are paid separately or deducted from invoices.

Section 1: Car Sales - Applying the Grant

When selling a vehicle that qualifies for a government EV grant, you must handle the grant as a receipt subsidy, not as a discount or factory option. This ensures it is reported accurately and does not distort financial statements or customer pricing.

1. Build Government Grants as a Receipt Subsidy

• Create the grant as a receipt subsidy on the stock record.

• Do not enter it as a factory or dealer option.

• This ensures it appears below the line on the customer invoice and is not confused with customer-applied discounts.

2. Zero-Value Factory Options

• Any factory options should be set to zero value in the vehicle record.

• Discounts can only be applied to the vehicle price, not the options.

• This prevents incorrect calculations that could affect grant eligibility.

3. Calculate the Correct Grant Application Amount

• The grant value must be based on the vehicle’s base price minus any qualifying discounts.

  • Examples of discounts: Fleet terms, Friends & Family, Motability.

• Do not include factory option discounts in the calculation.

  • Including them may make the vehicle ineligible or distort the grant amount.

4. Adjust for Finance Deals (If Applicable)

• For vehicles sold on finance, update the "Amount to Add to PX" field to incorporate the grant.

• This ensures the correct finance figure appears on the invoice.

• The receipt subsidy must be included in this field to ensure the grant is accurately reflected in the deal structure.

5. Add the Grant Reference to the Invoice

• Enter the grant reference (e.g., PIGC-012-033) as a zero-value accessory on the sales invoice.

• This serves as a record for audit and reference purposes.

Section 2: Car Purchases - Receiving the Grant

When purchasing a vehicle with a government grant, manufacturers may either pay the grant separately or deduct it from the purchase invoice. Each scenario must be accounted for differently.

1. Grants Paid as a Separate Credit (Standard Case)

• Treat this as a payment receipt posted on the vehicle's stock card.

• Allocate the receipt directly to the bank account.

• This method is straightforward and keeps records clean.

2. Grants Deducted from the Purchase Invoice (Complex Case)

Some manufacturers reduce the invoice amount by the grant (e.g., £5,000 off a £15,000 invoice). This must not be treated as a discount.

How to process:

• Post the full gross purchase invoice for £15,000 (inclusive of VAT).

• Treat the £5,000 deduction as a contra payment, not a price reduction.

• This preserves accurate VAT treatment and ensures correct profit/loss calculations.

3. Recording the Payment and Deductions

After posting the full purchase invoice:

1. Post a receipt payment on the stock card:

   • Use the cheque option.

   • Allocate the receipt to Nominal 1.30.60.0 (New Vehicle Banking Nominal).

2. Post a Nominal to Purchase Ledger Journal:

   • Allocate to the same purchase ledger account used for the vehicle purchase.

   • This represents the grant credit offset against the invoice.

3. Post the final payment:

   • Reflect the actual bank outlay (e.g., £10,000 if the £5,000 grant was deducted).

4. Balancing the Purchase Ledger Account

After completing the steps above, the purchase ledger account will include:

• The full purchase invoice (£15,000),

• A receipt entry (grant value),

• A payment entry (net cash paid).

These three entries will balance correctly on the ledger, ensuring the financial position and VAT reporting are accurate.