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As electricity becomes an increasingly large part of the fuel mix, how can fleet managers keep control of costs?

The era of two fuels is over: diesel popularity is waning as renewed low-CO2 tax incentives push company car drivers to swap pumps for chargers. But the tax system hasn’t kept up.

HMRC still doesn’t treat electricity as a fuel, which can cause unnecessary costs for electrified fleets. Here’s how to avoid them.  

BEV mileage rates – fit for purpose?

HMRC publishes Advisory Fuel Rates (AFRs) for every quarter, grouped by engine size and fuel type and adjusted in line with pump prices and average vehicle efficiency. The Advisory Electric Rate (AER) introduced in 2018 provides something similar for BEV drivers charging at home – where it’s harder to separate costs from the rest of a utility bill – but is nowhere near as granular. 

BEV efficiency is just as variable as that of petrol and diesel cars, so a big SUV will cost more per mile than a city car, but the AER doesn’t recognise this. Despite the recent increase from 4p per mile to 5p per mile, due to rising energy costs, it can leave drivers out of pocket even if they’re charging at home.

Autocar's company car tax calculator shows exactly what you'll pay for every make and model

  Flat rate cost per mile Dual rate peak Dual rate off-peak
Audi e-tron 50 quattro S-Line 7p 8p 4p
MG5 Excite Long Range 5p 6p 3p
Polestar 2 Long Range Single Motor 5p 6p 3p
Kia e-Niro 3 5p 6p 3p
Volkswagen ID.3 Life Pro Performance 5p 5p 3p
Fiat 500 Icon Hatchback 4p 5p 3p

Source: Dept. BEIS UK average unit costs, 2021 (18.9p flat, 22.0p peak, 11.0p off peak)

HMRC does offer some flexibility to cover this, though. Fleets can repay drivers on a per-unit (kilowatt-hour) rate to cover home charging or adjust the rates to match their costs, but it’s up to them to prove that the rates are realistic. If an audit suggests the employer is making a profit or effectively providing extra income to employees, then both are taxable. 

Public charging presents slightly different headaches. Most networks will let drivers request a VAT receipt for expenses, and some fuel cards now include chargepoint access within a single account, too.

However, the fastest and most convenient chargers are usually the most expensive. For example, Ionity’s ultra-fast units cost almost four times more per unit than the UK domestic average – so it could be worth encouraging drivers to make a slight detour to keep a lid on costs. 

How do you incentivise PHEV drivers to plug in?

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AFRs can also be problematic for PHEVs, which don’t have their own set of rates. Instead, drivers claim using the petrol or diesel rates, based on their engine capacity, and these are unlikely to reflect hybrid economy – let alone plug-in hybrid economy.

From 1 March 2021, the rates are as follows:

Petrol PHEVs Rated MPG AFR
Up to 1,400cc 52.7mpg 13p
1,401-2,000cc 44.9mpg 15p
Over 2,000cc 30.0mpg 22p
Diesel PHEVs Rated MPG AFR
Up to 1,600cc 63.6mpg 11p
1,601-2,000cc 51.3mpg 13p
Over 2,000cc 42.1mpg 16p

The good news for drivers is those rates should cover the cost of the fuel and electricity used. Unfortunately they can also be also generous enough that a driver could choose not to plug in at all, and still wouldn’t be out of pocket. A lot of PHEVs have large petrol engines and would be able to claim at 22p/mile, which would result in some hefty travel expenses. 

Although rates can be adjusted, it’s not a straightforward fix, as Association of Fleet Professionals chair, Paul Hollick, explains: “Generally, our advice is to use AFR rates as a minimum for PHEVs, otherwise employers need to track how many miles are done by each driver and vehicle on electric and on ICE power, which is extremely difficult and time consuming. 

“In fact, in most real world conditions, there is an argument for paying more than AFR, as most PHEVs will cost in excess of the current rate to run.”

So how do you encourage drivers to plug in?

There are some upsides to electricity getting a unique tax treatment, which can help keep costs down.

Home charging is vital for BEVs and especially PHEVs, as it’s the cheapest and most convenient way to top up. The UK government has stepped up funding for charge points in flats and rental properties, but recently stopped offering support for homeowners in single-occupancy properties (such as houses and bungalows). Employers can also pay to install chargers at drivers’ houses, without any tax implications. 

Businesses can also claim £350 per outlet to install workplace chargers and, unlike with petrol or diesel, the ‘fuel’ provided doesn’t count as a benefit-in-kind, even if it’s for private use. This could help drivers reduce their reliance on more expensive public chargers and keep expenses claims down.  

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Alex Grant

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superstevie 1 December 2021

I was offered an ID3 or ID4 as a company car. The advice from all the EV owners was to get a Tesla (not an option) due to their charging network and the mileage I do. For example, today alone I drove 380 miles, so having the ability to charge easily is important. The cost to charge one when you don't have the ability to charge from home means that it was completely unviable for me. On the average of 20000 miles I do, it meant that I'd be out of pocket by around 1200 a year, plus the tax, around the same as I pay for my current diesel Golf. For reference, I can't charge at home (I live in a flat), so would have to rely on public chargers.

These HMRC rates are set ridiculously low, and means that companies will stick to it, putting the onous onto the employee to prove to HMRC that they are out of pocket and get a tax rebate/whatever. Something seriously needs to be done to make this easier for people who want to make the switch.