Advisory Electricity Rate for EVs no longer fit for purpose, says fleet sector
The Association of Fleet Professionals and the BVRLA have teamed up to call for a review of the current Advisory Electricity Rate (AER) as they warn that it’s continuing to leave drivers short-changed.
Although HMRC introduced an Advisory Fuel Rate (AFR) of 4 pence per mile from 1 September 2018 for business mileage completed in fully electric company cars – which ensures no taxable profit and no Class 1 National Insurance when employers pay this rate – both associations say the rate is no longer reflective of real-world conditions.
Paul Hollick, chair at the AFP, explained: “The HMRC’s current rate was set at a time when business use of EVs was in its infancy and is quite a blunt instrument, using the same rate whether for a small city runabout or a large luxury 4×4. Clearly, the fuel costs of these vehicles are not the same.”
Advisory Rates are widely used by employers to determine reimbursement rates for employees claiming business mileage, with HMRC publishing updated AFRs quarterly for petrol, diesel, and hybrid vehicles.
Hollick added: “The Advisory Fuel Rates (AFRs) used for petrol, diesel and hybrid vehicles recognise that there are different engine sizes that have different fuelling costs. A similar approach needs to be adopted for their electric equivalents.”
It’s an issue that the AFP highlighted to Fleet World earlier this year. While employers can choose to use a different rate, they will only avoid a taxable Benefit-in-Kind if they can actually demonstrate a higher electricity cost per mile for business travel – something that’s far more labour-intensive compared to using the AER rate.
And data from TMC published in March 2021 further underscores how EV drivers are being left out of pocket by AER rates. Its fuel data analysis found the actual cost per mile for domestic charging was as much as 65% higher than the AER for cars and up to 165% higher for vans based on the WLTP figure.
Both the AFP and BVRLA have now written to HMRC to make the following recommendations:
- Review the current AER level
- Establish an ongoing review process for the AER
- Create a separate AER for vans
- Begin work on a hydrogen AFR
BVRLA chief executive Gerry Keaney continued: “The current AER rate and the process for determining it is not fit-for-purpose. It has the potential to compromise the uptake of electric vehicles, as employees will not, in many cases, be adequately reimbursed for their business travel costs.
“A fifth of BVRLA members’ fleet already has some form of electrification and this figure is only set to increase as more people look to upgrade to cleaner vehicles. The tax system must catch up and reform of the AER process is needed to ensure parity with the fairer process applied to AFRs.”
The Association of Fleet Professionals and the BVRLA added that they will continue to work together on this issue to ensure that the voice of the fleet industry is heard amongst policymakers.