HMRC will introduce an advisory fuel rate (AFR) for pure electric cars from September 1 at 4 pence per mile (ppl).
It is a partial victory for fleet representative body ACFO, which has been campaigning for AFRs for both pure electric cars and plug-in hybrids.
The new rate, called the Advisory Electricity Rate (AER), has been set at 4p per mile and will be published alongside AFRs for petrol, diesel and LPG (liquefied petroleum gas) cars based on engine size.
Plug-in hybrid and hybrid cars will continue to be treated as either petrol or diesel models for mileage reimbursement purposes.
AFRs apply where employers reimburse employees for business travel in their company cars, or require employees to repay the cost of fuel used for private travel. They are deemed to be tax and National Insurance-free. AFRs are reviewed quarterly and similarly, the new AER will be kept under review.
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.”
For many years, ACFO has been calling on HMRC to publish official tax-free company car AFRs for plug-in vehicles. It has been ACFO’s belief that the absence of defined mileage reimbursement rates was a handicap to some organisations including plug-in vehicles on their choice lists.
Read more: Fleet News