HM Revenue and Customs (HMRC) has announced its latest updates to the Advisory Electric Rate (AER) that will affect employees using a company car.
Reviewed every three months on a quarterly cycle, HMRC’s latest update confirmed that there are now two rates for home charging (eight pence a mile) and public charging (14 pence a mile).
The introduction of two independent rates, from 1st September, is designed to reflect the difference in cost between home and public charging points and, specifically, the higher costs associated with public charging.
Whilst the previous rate of 7 pence a mile, regardless of where charging takes place, could be used up until 30 September 2025, the new rates must be applied from 1 October.
Why does HMRC change the AER?
The purpose of regularly updating the AER is to reflect the different costs of charging electric vehicles.
They calculate the home rate based on the average domestic electricity price of 27.04pk/Wh and an efficiency of 3.59 miles per kWh. The public rate has followed the same principle, but starts at a cost of 51pk/Wh.
The regular updates provide clarity for both employers and employees, while also making rates fair for both types of charging.
Why does the AER matter for businesses?
Electric cars are becoming increasingly popular, and a more ‘mainstream’ option for company fleets.
The latest update to the AER can help finance teams calculate fairer reimbursements for employees using electric company cars for business journeys, or where employees are required to repay the cost of fuel used for private travel.
In addition, the difference in rates may prompt employers to consider the types of charging point that are available to employees.
Generally speaking, when using the Advisory Fuel Rates (AFRs) there is no tax or National Insurance liability for the employee, and no need to report the reimbursement to HMRC.
However, it is worth noting that in instances where you pay an employee more than the AER, you will need to ensure it is reported on the payroll as part of the employee’s salary.
Changes to Hybrid rates
The AER change only affects fully electric company cars. Hybrids are treated as either petrol or diesel, so the advisory fuel rates for these apply.
Whilst the petrol rate remains the same, two of the diesel rates have increased by 1 pence a mile. These now sit between 12-18 pence depending on the engine size.
Need support calculating the costs?
If your business provides company cars or reimburses employees for business mileage, you will need to keep on top of changes to advisory fuel and electric rates.
For assistance with calculating reimbursements, recovering VAT or just staying compliant, contact our team to discuss your requirements.
