The era of two fuels is over. Diesel is waning as renewed low-CO2 tax incentives push company car drivers to swap pumps for charge points, 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 milage 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 it’s nowhere near as granular.
BEV efficiency is just as variable as petrol or 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/mile to 5p/mile due to rising energy costs, it can leave drivers out of pocket even if they’re charging at home. And that’s even if they’re based on the latest UK average energy prices, from a year ago.
HMRC does offer some flexibility to cover this. 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. However, the fastest and most convenient chargers are usually the most expensive – for example, Ionity’s charges four times per unit as the UK domestic average – so it could be worth encouraging drivers to make a slight detour to keep a lid on costs.
How do you incentivise PHEV drivers to plug in?
AFRs can also be problematic for PHEVs, which don’t have their own set of rates. Instead, drivers claim using the petrol or diesel rates, based on their engine capacity, and these are unlikely to reflect hybrid economy – let alone a plug-in.
From 1 December 2021, the rates are as follows: