Business mileage rates for electric vehicles
Electric vehicles are rapidly rising in popularity among businesses, and many organisations are choosing to switch their entire fleet over to electric cars and vans.
Electric vehicles are rapidly rising in popularity among businesses, and many organisations are choosing to switch their entire fleet over to electric cars and vans. While this can bring with it many benefits including increased employee satisfaction and reduced business spending, there are some other aspects worth considering. One important consideration is the HMRC electric car mileage rate and allowances.
Mileage allowances for both diesel and petrol vehicles have been provided by HMRC for years, but it was only recently that they introduced electric car business mileage rates. These make it simple for your company to reimburse team members for expenses related to their company or personal cars.
Even if your business hasn’t switched to an electric vehicle fleet, your finance and HR teams will still need to be aware of the HMRC electric car milage rate. This is because some employees may have their own electric vehicles which they use for business purposes and so need to be able to claim their mileage back.
What is the HMRC electric car mileage rate?
In September 2018, HMRC announced that the Advisory Electricity Rate (AER) to be used for electric company cars is 4p per mile. With the current electric company car mileage allowance, an employee could drive 8,000 miles for business purposes and claim £320 in mileage.
The HMRC business mileage rates for electric cars are free from National Insurance Contributions and tax because they are not considered to provide any profit. The HMRC electric car mileage rate is reviewed quarterly, just like petrol and diesel mileage allowance, so are subject to change regularly. The AER is lower than the Advisory Fuel Rates (AFR) because it reflects the cost savings of running and maintaining an electric vehicle.
What is the electric car mileage allowance for private electric vehicles?
Claiming mileage works a little differently if your team are using their own privately owned electric vehicles for work purposes. When you do not provide your employees with a company car, you need to consider how they will be claiming mileage for their own vehicles. Because mileage allowances are not based on the amount of fuel used, but instead on the distance that has been travelled, the same mileage expenses can be used for petrol, diesel, and electric vehicles.
The business mileage rates for electric cars use the Approved Mileage Allowance Payments (AMAPs) which is currently 45p per business mile for the first 10,000 miles, and 25 per business mile thereafter. This means, if an employee drives 12,000 miles in an electric vehicle, they will claim for:
- First 10,000 miles = £4,500 (10,000 x 45p)
- Additional 2,000 miles = £500 (2,000 x 25p)
- Total expenses claim = £5,000 (£4,500 + £500)
Can a business choose their own electric car business mileage rates?
When it comes to the HMRC electric car mileage rate, you have the option to adapt this slightly to meet your own company requirements. Businesses can adopt their own rates for petrol and diesel vehicles, and the same can be done for electric cars.
For example, if the cost of travel is significantly higher for your employees, you could increase the AER amount, or if your company vehicles are extremely efficient, you could choose to reduce this.
It is important to note that in order to avoid paying NIC and tax, you must be able to evidence the reason for this adjustment to the HMRC. If you are unable to demonstrate why your adjustment is necessary, you can still have it in place, but you will be required to treat anything above the AER amount as a taxable profit.
How does the HMRC business mileage rates for electric cars work with a hybrid?
Hybrid vehicles are a blend of both electric and fuel, and they are very popular options for many individuals. Whether you have hybrid vehicles as part of your business fleet, or you have employees claiming mileage for a personally owned hybrid car, you need to know the correct allowances. Although there are HMRC business mileage rates for electric cars, there are no specific mileage rates for hybrid vehicles.
If you or your employees are using hybrid cars, then you should use the AFRs for the amount of fuel the vehicle is using. It does not matter if a driver primarily uses the petrol engine or electric motor, the calculations should still be done in the same way.
For example, if an employee drives 12,000 miles a year in a hybrid with a 2.5 petrol engine, then the business mileage will be £2,040 for the year. This is based on the AFR being 17p per mile for this type of hybrid vehicle.
Understanding the HMRC electric car mileage rate isn’t always straightforward, but it is essential you get it right for both your business and your employees. Find out more about Advisory Fuel Rates and electric vehicles.