100% Advisory Fuel Rate Introduced For Electric Cars
HM Revenue and Customs (HMRC) is to introduce an Advisory Fuel Rate (AFR) for 100% electric cars from September 1 this year of 4p per mile, following pressure from the fleet industry.
The new Advisory Electricity Rate will be published alongside AFRs for petrol, diesel and LPG (liquefied petroleum gas) cars and, as before, will be based on engine size.
However, plug-in hybrid and hybrid cars will continue to be treated as either petrol or diesel models for mileage reimbursement purposes, and will not have their own AFR, despite the industry also lobbying for their introduction.
What are Advisory Fuel Rates?
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.
They are reviewed every quarter and increase or reduce in line with prevailing fuel prices at the pumps. Similarly, HMRC says it will keep the new Advisory Electricity Rate under review.
Who has been campaigning for this?
The Association of Car Fleet Operators (ACFO) has been lobbying the taxman for some time to introduce AFRs for both electric cars and plug-in hybrids. So it felt it could claim at least a partial victory when the announcement was made.
In notifying ACFO of the introduction of the new rate for EVs, HMRC said: “We 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 AFRs, 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 AFR 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.”
What is the background to this?
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 vehicle choice lists.
Last year, ACFO hosted a fleet industry summit, which included representatives of the British Vehicle Rental and Leasing Association, contract hire and leasing companies, motor manufacturers producing plug-in vehicles and fleet managers operating zero emissions and plug-in hybrid cars.
Together they called on HMRC to publish AFRs for 100% electric vehicles, range extended electric vehicles, and plug-in hybrid petrol and diesel models. They also submitted suggested reimbursement rates and related calculations.
ACFO then followed that up by launching an online petition earlier this year, which to date has attracted support from fleet managers operating more than 120,000 company cars.
ACFO chairman ‘delighted’
ACFO chairman John Pryor said that he was ‘delighted’ that HMRC has listened to the fleet industry and introduced an AFR for 100% electric cars and at the recommended rate.
“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 forward and will assist all fleets operating and seeking to introduce pure electric cars,” he said.
However, he continued: “We are disappointed that HMRC has not supported our call for Advisory Electricity Rates for plug-in hybrid petrol and diesel cars and range extended electric vehicles as well.
“Plug-in hybrids are a major part of vehicle manufacturers’ future electrification programmes and, as a result, an increasing number of such vehicles will find their way onto company car choice lists due to their benefit-in-kind tax efficiency.”
Pryor said he believed that without an incentive linked to how such ultra-low emission vehicles are used on the road, it will not prevent drivers from continuing to use combustion engines in a plug-in hybrid car.
“Plug-in hybrids 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 Advisory Electricity Rates for plug-in hybrids will help to encourage drivers to use the car in the optimal environmentally-friendly way,” he said.
As a result, ACFO now intends to keep up the pressure on HMRC to introduce Advisory Electricity Rates for plug-in hybrid cars as well as for range extended electric vehicles.