The era of two fuels is over: diesel popularity is waning as renewed low-CO2 tax incentives push company car drivers to swap pumps for chargers. But the tax system hasn’t kept up.
HMRC still doesn’t treat electricity as a fuel, which can cause unnecessary costs for electrified fleets. Here’s how to avoid them.
BEV mileage rates – fit for purpose?
HMRC publishes Advisory Fuel Rates (AFRs) for every quarter, grouped by engine size and fuel type and adjusted in line with pump prices and average vehicle efficiency. The Advisory Electric Rate (AER) introduced in 2018 provides something similar for BEV drivers charging at home – where it’s harder to separate costs from the rest of a utility bill – but is nowhere near as granular.
BEV efficiency is just as variable as that of petrol and diesel cars, so a big SUV will cost more per mile than a city car, but the AER doesn’t recognise this. Despite the recent increase from 4p per mile to 5p per mile, due to rising energy costs, it can leave drivers out of pocket even if they’re charging at home.
Autocar's company car tax calculator shows exactly what you'll pay for every make and model
| Flat rate cost per mile | Dual rate peak | Dual rate off-peak | |
|---|---|---|---|
| Audi e-tron 50 quattro S-Line | 7p | 8p | 4p |
| MG5 Excite Long Range | 5p | 6p | 3p |
| Polestar 2 Long Range Single Motor | 5p | 6p | 3p |
| Kia Niro EV 3 | 5p | 6p | 3p |
| Volkswagen ID.3 Life Pro Performance | 5p | 5p | 3p |
| Fiat 500 Icon Hatchback | 4p | 5p | 3p |
Source: Dept. BEIS UK average unit costs, 2021 (18.9p flat, 22.0p peak, 11.0p off peak)
Fleets have also expressed concerns that the rate isn’t keeping pace with energy prices which, according to Government data, were 45% higher in the second quarter 2022 than they had been a year previously. The Energy Price Guarantee introduced in October 2022 has capped electricity at 34p/kWh until April 2023, which equates to charging costs of 8p/mile for the Fiat 500 shown above.
HMRC does offer some flexibility to cover this, though. Fleets can repay drivers on a per-unit (kilowatt-hour) rate to cover home charging or adjust the rates to match their costs, but it’s up to them to prove that the rates are realistic. If an audit suggests the employer is making a profit or effectively providing extra income to employees, then both are taxable.
Public charging presents slightly different headaches. Most networks will let drivers request a VAT receipt for expenses, and some fuel cards now include chargepoint access within a single account, too.
the fastest and most convenient chargers usually cost twice as much as plugging in at home. For example, Ionity’s ultra-fast units cost almost four times more per unit than the UK domestic average – so it could be worth encouraging drivers to make a slight detour to keep a lid on costs.
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I was offered an ID3 or ID4 as a company car. The advice from all the EV owners was to get a Tesla (not an option) due to their charging network and the mileage I do. For example, today alone I drove 380 miles, so having the ability to charge easily is important. The cost to charge one when you don't have the ability to charge from home means that it was completely unviable for me. On the average of 20000 miles I do, it meant that I'd be out of pocket by around 1200 a year, plus the tax, around the same as I pay for my current diesel Golf. For reference, I can't charge at home (I live in a flat), so would have to rely on public chargers.
These HMRC rates are set ridiculously low, and means that companies will stick to it, putting the onous onto the employee to prove to HMRC that they are out of pocket and get a tax rebate/whatever. Something seriously needs to be done to make this easier for people who want to make the switch.