Fleet News

Reimburse EV rate at ‘out of pocket’ cost, fleets told

The absence of an advisory fuel rate (AFR) for electric vehicles (EVs) should not stop fleets including plug-ins on fleet policies.

That’s the view of The Miles Consultancy (TMC), which is recommending employers reimburse EV mileage at a pence-per-mile (ppm) rate calculated to closely reflect actual cost. It estimates that, based on current electricity tariffs, reimbursement should equate to a cost-per-mile rate of 2.94p.

HM Revenue and Customs (HMRC) does not recognise electricity as a fuel, hence the lack of an AFR for EVs. But this is impacting the uptake of EVs by fleets, says TMC.

Fleets that use AFRs when reimbursing company car fuel costs often also use them in wholelife cost (WLC) calculations. The objection to EVs is that, without an official AFR to refer to, no WLC can be set.

Paul Hollick, commercial director at TMC, said: “Fleet managers need more certainty on this topic before deploying further than just a nucleus of pool vehicles they may have on fleet.

“I have met one 3,000-plus vehicle fleet that has not rolled out its full EV strategy, because they are confused about what to pay drivers for their electricity consumption and whether they need to deduct any money from employees for their private use when using the charging stations at work.”

HMRC’s decision not to provide an AFR was based on  the premise that it would be unviable, considering the wide variation in electricity costs during certain times of the day.

There was also the likelihood that EV drivers would charge both at home and at work where the electricity was paid for by the employer. If so, it said there would be a lack of definitive evidence that the employee had incurred the cost of electricity used. The absence of reliable data on mile per kWh consumption rates was also said to be an issue.

However, reliable data is now available for typical miles-per-kWh performance from manufacturers and the associated electricity costs can be obtained from Energy Saving Trust, says TMC.

With this approach, it argues that the employer can agree a ppm rate for EVs based on known parameters, such as battery capacity, normal driving range in real-world conditions and the average cost-per-kWh of electricity from typical sources, including the home, workplace and public charge points. In May, the representative costs for domestic electricity were 7.22p per kWh for Economy 7 and 14.05p per kWh for suppliers on a standard tariff. That means a car with a 25kWh battery and a typical range of 85 miles returns 3.4 miles per kWh.

Using an average cost of 10p per kWh, assuming the vehicle is primarily charged at home overnight, the cost-per-mile is 2.94p.

TMC says that even though an AFR is not quoted for EVs, if an employer reimburses at a figure which closely reflects actual cost, HMRC will accept there is no taxable profit and no Class 1A national insurance to pay. However, Hollick said it is important that “the actual cost calculation is robust and correctly pays employees at the effective rate that they are ‘out of pocket’ for”.

The Office for Low Emission Vehicles (OLEV) says the Government recognises that this is a “developing area” and is keeping the tax rules under review to ensure that they remain effective in promoting the take-up of plug-in vehicles.

However, Hollick doesn’t expect to see much change. He said: “The fact is, the Revenue believe they have given sufficient guidance on the topic. Most would disagree.

“With continued lobbying and an increase in EV adoption, this will change over the next two to three years.”

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  • sage&onion - 16/06/2015 18:24

    It's not rocket science for HMRC to assume an average cost of electricity and average pence per mile figure for EV's and plug-in hybrids. After all they already make an assumption of average traditional fuel costs and an assumption of average mpg by engine size (which is a totally out of date approach now that most taxes are now based on co2!), So come on HMRC, please apply some common sense, and some simple maths and cut out the red tape and make AFR rates available for EV's and plug-in hybrids. In the meantime HMRC can't really complain if employers choose to use the actual cost reimbursement method and make their own assumptions on pence per mile can they?

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  • Bob the Engineer - 16/06/2015 21:32

    This situation is an utter mess, fleets need to be a bit more flexible at the top. My company allow us plug in hybrids for Green reasons hooray and all that! But refuses to modify 'policy' (our car policy is carved in stone apparently) to reimburse electricity use by any means. We now have the ludicrous situation of most the drivers refusing to put THEIR electricity in them and partly subsidising business miles.. I should cocoa!!! So we have a group with 29mpg petrol SUV's that are never plugged in out there. Crazy. Our mileage is already verified through the damned telematics and submitted monthly. All it would take is a couple of extra paragraphs in the policy stating for plug in drivers drop the fuel card and pay straight business miles at a sensible rate. Job done. You would think it were harder than redrafting the Magna Carta!!!

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