EVs set to get Advisory Fuel Rate

The UK Government is set to introduce an Advisory Fuel Rate (AFR) for electric vehicles at 4p per mile from 1st September 2018, removing some of the uncertainty around EVs used as company cars.

Due to be termed an Advisory Electricity Rate, the new set-up will be published alongside AFRs for petrol, diesel, and LPG-fuelled cars based on engine size.

Having campaigned for clarification from HM Revenue and Customs (HMRC) on the issue, the Association of Car Fleet Operators (ACFO) has claimed a victory for pure-electric company car drivers - though the ACFO says there is still work to be done on plug-in hybrid rates.

PHEVs and conventional hybrids are classed as either petrol or diesel models for the purpose of mileage reimbursement, despite the fuel types now making up a considerable proportion of the UK's company car fleet.

Advising the ACFO of the introduction of the new Advisory Electricity 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."

Advisory fuel rates are updated quarterly and come into play where employers reimburse employees for business travel in a company car, or when employees are required to have fuel costs for private travel repaid. As an expense, they are classed as tax and National Insurance free.

The ACFO says that it has been calling on HMRC to publish official tax-free company car Advisory Fuel Rates for plug-in vehicles for a number of years. It has been the 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.

ACFO chairman John Pryor said: "I am delighted that HMRC has listened to the voice of ACFO and its members and introduced an Advisory Fuel Rate for 100% electric cars and at the rate we recommended. 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 and will assist all fleets operating and seeking to introduce pure electric cars."

"We are disappointed that HMRC has not supported ACFO's call for Advisory Electricity Rates to be introduced for plug-in hybrid petrol and diesel cars and range extended electric vehicles.

"Plug-in hybrid models 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.

"But without an incentive linked to how such ultra-low emission vehicles are used on the road, it will not prevent drivers using the combustion engine alone in a plug-in hybrid car.

"Plug-in hybrid vehicles 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 hybrid cars will help to encourage drivers to use the car in the optimal environmentally-friendly way.

"Therefore, we will keep up the pressure on HMRC to introduce Advisory Electricity Rates for plug-in hybrid cars as well as for range extended electric vehicles."

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Chris Lilly

Author:Chris Lilly
Date Updated:8th Aug 2018

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