Businesses can pay mileage for company electric car drivers from 1 September, following the introduction of a new Advisory Electric Rate (AER).
The AER has been set at 4p per mile for 100% electric cars, which introduces greater incentives to use zero-emissions vehicles for the first time. HMRC hasn’t considered electricity as a fuel until this update, so the change represents a fundamental shift in how fleets will be taxed, giving another reason for companies to move to greener options.
The advisory fuel rates are used by businesses when reimbursing employees for any business mileage and are also the amount employees must repay for any private travel. The rates, including the AER, are applied free of tax and national insurance, which makes them a tax-efficient option.
Employers can choose to pay a higher rate of mileage, but proof of higher electricity costs will have to be provided for this to be tax deductible. If the extra cost can’t be demonstrated, any excess will be treated as taxable profit and national insurance will have to be paid.
The petrol and diesel rates have also been updated, with increases for smaller petrol engines and mid-sized diesel engines. Hybrid cars continue to be treated as either petrol or diesel vehicles, depending on their engine.
The UK is facing ongoing issues with reducing air pollution and emissions levels, especially in city centres, so the new fuel rate could provide enticement for businesses to switch to electric vehicles. With charging infrastructure growing more established throughout the country, electric cars will only become more commonplace.
