HMRC to announce advisory fuel rate for ‘pure’ electric cars

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HMRC has announced the introduction of an advisory fuel rate for 100% electric cars from September 1 at 4p per mile.

The Advisory Electricity Rate (AER) will be available alongside current AFRs for petrol, diesel and LPG cars when the next AFRs are published.

For mileage reimbursement, hybrid and plug-in hybrid cars will continue to be treated as either petrol or diesel models.

Set by HMRC, employers can use advisory fuel rates (AFR) to reimburse company car drivers for business fuel. They can also be used if employees are required to repay the cost of fuel used for private travel.

AFRs are deemed tax and National Insurance-free and are reviewed quarterly. According to fleet representative organisation ACFO, the new AER will be kept under review in the same way.

An HMRC spokesperson told AccountingWEB that the department is currently in the process of contacting employers, through an employer bulletin, to advise them on the introduction of the new rate.

“HMRC will be publishing new Advisory Fuel Rates (AFRs) prior to the 1 September implementation date,” said the spokesperson. “As well as the petrol and diesel rates, this time around HMRC will also be publishing an AFR for 100% electric cars. The AFR for 100% electric cars will be set at 4p per mile.”

The tax authority also told ACFO that it will accept that if employers pay up to the AER of 4p per mile when reimbursing their employees for business travel in a fully electric company car there is no profit – therefore there will be no taxable profit and no Class 1 National Insurance to pay.

“On a similar basis to Advisory Fuel Rates, employers can use their own rate which better reflects their circumstances if, for example, their cars are more efficient, or if the cost of business travel is higher than the guideline rate,” said the statement.

“However, if they pay a rate that is higher than the Advisory Fuel Rate and can’t demonstrate the electricity cost per mile is higher, they will have to treat any excess as taxable profit and as earnings for Class 1 National Insurance purposes.”

Fleet organisations have been lobbying HMRC to publish company car AFRs for electric and hybrid vehicles for some time, in the belief that their absence disadvantages those businesses or organisations using them.

Reacting to the news ACFO chairman John Pryor said he was “delighted” HMRC had listened and will issue the AER.

“Historically, HMRC has consistently said that it did not consider electricity to be a fuel, so for it to make this change is a major leap and will assist all fleets operating and seeking to introduce pure electric cars,” said Pryor.

However, Pryor went on to state that he was “disappointed” HMRC had not supported ACFO’s call for the rate to be introduced for plug-in hybrid petrol and diesel cars and range extended electric vehicles.

“Plug-in hybrid models are a major part of vehicle manufacturers’ future electrification programmes and, as a result, an increasing number of such vehicles will find their way onto company car choice lists due to their benefit-in-kind tax efficiency.

“But without an incentive linked to how such ultra-low emission vehicles are used on the road, it will not prevent drivers using the combustion engine alone in a plug-in hybrid car.

“Plug-in hybrid vehicles are at their most efficient when driven for as many miles as possible on electric power. Therefore, particularly with technology advances likely to increase the electric range of such cars, publishing appropriate Advisory Electricity Rates for plug-in hybrid cars will help to encourage drivers to use the car in the optimal environmentally-friendly way.”

About Tom Herbert

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Replies

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15th Aug 2018 09:53

Blimey, I seem to be in the right place at the right time, at last. My solar panels will go live in 24 hours and so I'll be creating my own fuel!

Saves digging a hole!

Thanks (3)
By mjshort
15th Aug 2018 11:27

Currently there is no benefit for electric cars as it is not "Fuel"

Is this the HMRC way of introducing a charge for private use of Electric Vehicles?

Thanks (0)
to mjshort
15th Aug 2018 11:48

No it's a way for me to claim back the "cost" of providing the "fuel" for my company car when doing business miles....I'm going to be rich!

Thanks (1)
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15th Aug 2018 22:41

The issue that the charging at home is very cheap, hence this is a good rate for people who can always charge at home. But charging at motorway service stations etc costs a LOT more, hence this rate will not cover anyone doing long-distance travel in an electric car.

(It is also hard to put a meter on a home charge point, as the same home charger may be used for more than one car.)

Thanks (1)
to ianstockport
16th Aug 2018 00:04

Is that your experience or did you read it somewhere?

Given the wide range of vehicle efficiencies and the even wider range of charging rates and methodologies you can not make a blanket statement that 4p per mile will not cover the charges.

Over the past year I’ve regularly done 200 to 400 mile round trips and have paid anything from nothing to 30p per kWh using public charging points and over that period I have averaged about 2.5p per mile.

I use rapid chargers for these long journeys, which are the most expensive but for pottering around many public car parks, garden or shopping centres charge next to nothing or give free parking.

These days you are not stuck using the most expensive chargers on say a motorway. I quite often can exit a junction and use hotel or out of town shopping centre charges at just over a third of the cost.

With regard to metering your use at home, my charger has a meter but even with a 3 pin plug you can work out what electricity you’ve used by how long it took or the % charge you’ve added to the car’s battery, it’s easy.

Thanks (1)
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By ringi
to Paul Scholes
16th Aug 2018 11:20

But for the "fixed rate" expensive system to be useful to employers it must be agreeable to all staff who have or may get a EV. You can not expect staff to spend time finding cheap charging etc as you are already asking them to put up with having to travel as part of their job.

This rate being so low may put people of buying a EV if they will have to pay out of their own pocket for work travel due to changeing on moterways being so costly.

But it is a lot of admin to have staff reclaim the real cost of charging, including home charging, along with having enough proof for HMRC that the claim is valid.

(Clearly for company cars, using the rate for private travel can be made to work with the company covering all charging costs. Remember that a company can charge staff more then the rate for personal usage. But this depends on the home charger being only used for one car. )

Thanks (0)
to ringi
16th Aug 2018 15:39

I’m honestly struggling to understand your complaint here, how is this any different from the rules for fossil fueled cars (ICEVs)? The AFRs for them will be over or under the true cost of the fuel depending on the car, the fuel and how you drive, where’s the difference?

Ten years ago I drove Smart cars as both company and owned cars and made a killing on both fuel and mileage rates, but would have struggled to do the same with more expensive or fossil guzzling models.

The choice to buy EVs over ICEVs is a company decision and, for the average company car, where business miles may be considerable, the company will recognise the substantial difference in the cost of fuelling each. Plus, if there really is a disparity in the AFR and the actual cost of the fuel, the company is allowed to calculate and pay (or demand) its own rate which, in my case, if paying 30p pkWh on motorways, would amount to say 7 p per mile.

Thanks (0)
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to Paul Scholes
16th Aug 2018 16:19

There is not a difference of a factor of nearly 5 for the per mile cost of “fuelling” a fossil fuelled cars (ICEVs) based on where someone is driving and what distance they are driving in a day. But with an EV it costs nearly 5 times as much to charge it at a motorway service station then overnight on E7.

(There is also not the option to use a “fuel card” so as to get all the cost information in one bill for the accounting department.)

Companies need to have one rule for all members of staff, regardless of where they are driving, and that is easy to collect the data for, otherwise, they are likely to see EVs as too much of a pain.

Thanks (0)
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By ringi
to Paul Scholes
16th Aug 2018 11:20

But for the "fixed rate" expensive system to be useful to employers it must be agreeable to all staff who have or may get a EV. You can not expect staff to spend time finding cheap charging etc as you are already asking them to put up with having to travel as part of their job.

This rate being so low may put people of buying a EV if they will have to pay out of their own pocket for work travel due to changeing on moterways being so costly.

But it is a lot of admin to have staff reclaim the real cost of charging, including home charging, along with having enough proof for HMRC that the claim is valid.

(Clearly for company cars, using the rate for private travel can be made to work with the company covering all charging costs. Remember that a company can charge staff more then the rate for personal usage. But this depends on the home charger being only used for one car. )

Thanks (0)