An advisory fuel rate (AFR) for pure electric cars will be introduced by HMRC from 1 September at a rate of 4 pence per mile.
The new rate, called the Advisory Electricity Rate (AER), will be announced alongside AFRs for petrol, diesel and LPG cars based on their engine size. AFRs apply where employers reimburse employees for business travel in their company cars, or require employees to repay the cost of fuel for private use.
The move has been welcomed by fleet representative body ACFO, which has been pushing for AFRs to include a pure electric car rate.
In notifying ACFO of the introduction of the new rate, HMRC said: “HMRC will accept that if employers pay up to the Advisory Electricity Rate of 4p per mile when reimbursing their employees for business travel in a fully electric company car there is no profit – 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.
“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.”
This policy is inline with the AFR rules around cars that use other types of fuel, where payments are also tax and National Insurance-free. The all electric rate will be reviewed quarterly with the other fuel rates. Plug-in hybrid and hybrid cars will continue to be treated as either petrol or diesel models for mileage reimbursement purposes.
ACFO chairman John Pryor said: “I am delighted that HMRC has listened to the voice of ACFO and its members and introduced an AFR for 100 per cent electric cars and at the rate we recommended.
“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.”
However, Pryor said that HMRC had not chosen to take forward its call to introduce separate rates for plug-in hybrid petrol and diesel cars and range extended electric vehicles. He argued that plug-in models are increasingly being introduced by vehicle manufacturers. However, without an incentive linked to how such ultra-low emission vehicles are used, drivers will be reluctant to switch to hybrid cars.
“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 AERs for plug-in hybrid cars will help to encourage drivers to use the car in the optimal environmentally-friendly way,” he said.
Pryor concluded: “Therefore, we will keep up the pressure on HMRC to introduce AERs for plug-in hybrid cars as well as for range extended electric vehicles.”
