How company car fleets can switch from fossil fuels to EVs
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 is waning as renewed low-CO2 tax incentives push company car drivers to swap pumps for charge points, 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 milage 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 it’s nowhere near as granular.
BEV efficiency is just as variable as petrol or 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/mile to 5p/mile due to rising energy costs, it can leave drivers out of pocket even if they’re charging at home. And that’s even if they’re based on the latest UK average energy prices, from a year ago.
*Autocar's company car tax calculator shows exactly what you'll pay for every make and model*
HMRC does offer some flexibility to cover this. 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 charges four times per unit as 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?*
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 a plug-in.
From 1 December 2021, the rates are as follows:
The good news for drivers is those rates should easily cover the cost of the fuel and electricity used. Unfortunately they’re also generous enough that a driver could choose not to plug in at all, and still wouldn’t be out of pocket. Lots of PHEVs have large petrol engines and would be able to claim at 22p/mile, which would result in some hefty travel expenses.
There’s no simple solution to this. Any adjustment to the published rates would have to be justifiable to HMRC during an audit. The Miles Consultancy has suggested that fleets could opt to reimburse PHEV drivers for the first 20-30 miles of a trip at the AER (5p/mile) and the rest at the appropriate AFR, to encourage drivers to use vehicles properly.
*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 Government has stepped up funding for charge points in flats and rental properties (but is winding down grants for homeowners next year). Employers can also pay to install charge points at drivers’ houses, without any tax implications.
Businesses can also claim £350 per outlet to install workplace charging points and, unlike 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.