HM Revenue and Customs (HMRC) has provided guidelines about how fleets can reimburse drivers of electric company cars for business and private miles. However, the rules are confused and appear contradictory.
While employers can use advisory fuel rates (AFRs) for hassle-free reimbursement of business travel in petrol and diesel company cars, these rates do not apply to electric vehicles (EVs), because electricity is not considered a fuel.
Without a reliable fuel cost figure it’s difficult for fleets to forecast a wholelife cost for EVs, which some commentators claim is holding back fleet uptake of battery-powered cars.
Uncertainty over the tax implications for employees recharging cars at work has further muddied the waters.
Now, HMRC has moved to set the matter straight in an address to fleet managers at the ACFO Autumn Conference.
Elizabeth Ward-Lewis, HMRC personal tax customer product and process, said: “Electric cars don’t have any AFR rates, so that means you should be using the actual costs of charging vehicles.”
However, the rules are confused because two home-charging scenarios have different outcomes for tax.
- If the employee charges their car at home using their own electricity, and their employer reimburses for business and private mileage, then the reimbursement would be taxed as earnings, albeit with a proportionate deduction for the cost of business miles travelled (there is no taxable benefit if the car is used only for business).
- If the employee charges their car at home using electricity provided by their employer (for example, the employer installs a vehicle charging point and pays for electricity used), there is no additional benefit, so no tax is due.
In both instances, the employer is paying for the full cost of electricity used, yet only one results in a taxable benefit.
- If the employee charges their company car at work, HMRC considers there to be no additional benefit for tax purposes, even if the car has private use. So it is not taxable.
- If the employee charges their car at home, but is not reimbursed for business mileage, they are entitled to a tax deduction for the electricity costs incurred on work journeys.
Any taxable benefit will be negligible: according to the Fleet News running cost calculator, the cost of electricity to run a Nissan Leaf over 10,000 miles is £370. For a 20% taxpayer, this equates to £74 if all mileage is private.
Ward-Lewis also explained that different rules apply to privately-owned EVs used for business trips.
“Electric cars owned by an employee can claim AMAPs and it’s the same rate as petrol or diesel ,” she said.
However, employees who charge their private electric cars at work should face a taxable benefit in kind on the cost of any electricity used.
What is a business mile?
HMRC has published an updated version of its policy on the taxation of travel expenses. The document, called HMRC 490 Employee travel – a tax and NICs guide for employers, defines what counts as a business journey.
1. ‘Ordinary commuting’ is specifically excluded from being considered a business journey. This is any travel between the employee’s home and a permanent workplace.
2. An employee, such as a service engineer, who travels between different clients throughout the day and who has no normal workplace, can treat all his journeys as business miles, including the first and last trip of the day to and from home.
3. An employee who works for the same company at two different sites cannot treat as business mileage the journeys to or from either site and home. But any journeys between the two offices would be business miles.
4. Travel from home to a depot where an employee picks up jobs or tools prior to setting out for appointments would be considered commuting – the depot would be a permanent workplace, even if the employee then spent the rest of the day away from the site.
5. If an employee leaves home and passes his permanent workplace, but does not stop, on the way to see a client then all of the journey is business travel. If, however, he stops at his normal workplace for ‘substantive duties’, such as making a phone call, then this would be treated as two journeys – a commute to his workplace, followed by a journey to the client, and only the latter would be counted as business miles.