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.”
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