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March 18, 2022
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Don’t Get Shocked: Reclaiming Charging Costs for Electric Company Cars

Plug-in electric vehicles offer a wider variety of ‘refuelling’ options for drivers, including charging at home, at work and at public charging stations. When reclaiming the cost of charging for business travel, there are some unique tax considerations for fully electric cars.

The Advisory Electric Rate (AER)

Electricity for a company car is not considered ‘fuel’ and therefore, no fuel benefit charge will arise. HMRC publish advisory rates for businesses to use for the re-imbursement of mileage in company cars. These rates will be used where a company is reimbursing its employees for business travel in company cars but also when employees are required to repay the cost of fuel for private travel (more discussed below).

Furthermore, HMRC have recently introduced the Advisory Electricity Rate (“AER”) for fully electric cars. From 1 March 2022, AER for fully electric cars is currently set at 5p per mile.

The AER is not changing the fact that electricity is not considered fuel for fuel company car purposes but is placing a cap on the amount that can be paid tax-free for re-imbursing employees for business mileage in fully electric company cars. The current rate can be found here: https://www.gov.uk/guidance/advisory-fuel-rates.

HMRC review these rates quarterly on 1 March, 1 June, 1 September and 1 December and with the rise of electric vehicles, businesses should check these rates on a regular basis. Where businesses are using hybrid cars, they will be required to use the appropriate rates for petrol/diesel cars detailed in the above link.

Reimbursing employees for company car business travel

Whilst these advisory rates are not binding, where there is a reimbursement by the employer to the employee and it is no higher than the AER, there will be no taxable profit and no Class 1A National Insurance Contributions that needs to be paid.

Where there is a reimbursement above the AER, it is possible for employers to use their own rates if HMRC can be persuaded that the employer’s rate better reflect the circumstances involved (e.g. the employee making numerous short business journeys, so fuel consumption is higher, or the car is more efficient) and the cost behind this business travel differs from the advisory rates. Companies should be prepared to support their conclusions with documentary evidence.

If the company pays rates that are higher than the AER but cannot show the ‘fuel’ cost per mile is higher, there will be no fuel benefit charge if the mileage payments are only for business travel. But any excess will have to be treated as taxable profit and earnings for Class 1 National Insurance purposes.

Employees to repay the cost of fuel used for private travel

There could be circumstances where the employer pays for all fuel in the car and then seeks repayment of the private travel element from the employee. HMRC should accept that there are no tax or Class 1A National Insurance Contributions due for payment where you are able to correctly identify and record the private mileage and the employee reimburses the company for this mileage at the AER rates or higher. There are some exceptions to this that we have not considered in this article.

Other Points on Electricity Benefits

Other notable points on electricity benefits for employees:

  • Where the employer allows the employee to re-charge their company car from a vehicle charging point at work, there should be no taxable benefit.
  • Where certain conditions are met, if an employer pays for a vehicle charging point to be installed at the employee’s home for the company car, there is no taxable benefit.
  • For the 2021/22 tax year, the taxable benefit in kind of a car with zero emissions is 1% of the listed price.

A tailored approach

With the rising popularity of electric company cars, employers should take steps to ensure that the provision of such vehicles is tax efficient for the company and the employee. If you require any further information on the AER, reclaiming the cost of charging your electric car or you are considering introducing a fleet of electric vehicles for your company, please contact a member of our team.

There are a number of complexities with regards to the taxation of electric company cars, so independent tax advice should be sought when determining your tax liabilities and obligations. 

Related Articles 

E-Mission To Become Net Zero: Government Pushing Towards Zero Emissions Cars and Impact on First Year Allowances

 

Salary sacrifice: The benefits of electric and hybrid cars

Contact us today to discuss your tax requirements.
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