Mileage claim for electric cars
There has been a gradual shift towards more widespread use of electric vehicles as businesses and governments recognise the need to tackle climate change and develop cleaner modes of transport. Government regulations on pollution, tax relief and mileage allowances have all had to adapt to encourage new forms of transport such as bicycles, hybrid vehicles and fully-electric cars.
Plug-In car Grant for eletric vehicles
Electric vehicles are currently more expensive than petrol or diesel cars, mainly due to the type of technology that powers them, advances in technology mean electric-powered vehicles are getting much closer to conventionally powered vehicles in terms of price and autonomy.
Additionally, the government has made a commitment to ban the sale of new petrol and diesel cars from 2030 and has launched financial incentives for the purchase of electric vehicles. The government’s Plug-In Car Grant currently offers £2,500 off the cost of electric cars which cost less than £35,000 (recommended retail price including VAT and delivery fees).
As technology advances at break-neck speed, government initiatives are constantly changing to try to keep up. It is worth checking the latest developments before investing in a new vehicle.
Mileage allowance payments
Mileage allowance payments (MAPs) are set by HMRC to indicate the maximum amounts that employers can pay their employees when they use their own personal vehicles (either owned outright or leased by the employee) for the purposes of business travel.
Tax-free mileage allowance payments apply regardless of the type of fuel on which the vehicle runs.
Mileage allowance payments cover the cost of fuel, insurance, road tax and general wear and tear on an employee’s personal vehicle when they use it in the course of their work. A maximum amount is set by HMRC that a business or self-employed individual can claim per mile.
As these rates are only “advisory”, employers in the UK are not obliged to pay a mileage allowance to their employees. However, many now choose to incorporate the mileage allowance payment into the travel policy. If the payment you make to your employees is equal to or under the HMRC-approved mileage rates, it does not need to be reported to the HMRC. You also do not need to pay tax on this amount. If your payment is more than the approved mileage allowance payment (MAP), then the excess is considered to be a “personal benefit” to the employee. Tax will have to be paid on this amount. Anything above the approved amount must be reported to the HMRC and included in the company’s tax returns.
If an employee is paid less than the approved amount, they may deduct the shortfall.
However, MAPs do not apply when the employer provides their employees with a company vehicle. In this case, different regulations and rates apply.
Advisory Fuel Rates
When an employee is provided with a company vehicle, they are eligible to claim what is known as Advisory Fuel Rates (AFRs). Advisory Fuel Rates are set by HMRC on a quarterly basis. These are specific rates that employees can use to claim back the cost of the fuel used in company vehicles on work-related journeys.
Advisory Fuel Rates ensure that employees are not out of pocket when it comes to using a company car for work purposes. Unlike MAPs, the Advisory Fuel Rates are designed to only cover the cost of the fuel (not other on-road costs such as wear and tear, insurance, etc.).
Because the Advisory Fuel Rates are supposed to cover the fuel costs to the employee, they are updated on a quarterly basis by HMRC to reflect real prices as closely as possible. New rates are issued by HMRC on 1 March, 1 June, 1 September and 1 December. The rate is calculated using the mean miles per gallon from the manufacturer’s information.
The current HMRC advisory fuel rates are calculated depending on the type of fuel used (petrol, diesel, liquefied petroleum gas) and the size of the vehicle’s engine.
The Advisory Fuel Rates do not cover fully electric vehicles.
Advisory Electricity Rates
Fully electric vehicles are covered by a separate flat rate, which is known as the Advisory Electricity Rate. This is much lower than the advisory fuel rate to reflect the fact that the cost of running an electric vehicle is significantly lower than running one powered by petrol, diesel or LPG. The current advisory flat rate for electric vehicles is 5p per mile.
If an employee travels 6,000 miles in a fully electric company car over a tax year, they are entitled to claim £300 in mileage for that tax year. This amount is free of tax or National Insurance contributions.
The advisory electricity rate for fully electric cars is calculated using data from the Department for Business, Energy and Industrial Strategy, as well as electricity consumption rates provided by the Department of Transport.
Charging electric vehicles
Employers who provide electric vehicles as company cars to their employees may also have electricity charging facilities installed at the workplace. These facilities are tax-free and can be used to recharge electric car batteries that are owned by the company or privately owned by the employee. Provided that this charging facility is located “at or near the workplace”, these charging stations can be used on top of the advisory electricity rate.
Although investing in buying an electric vehicle may still seem expensive in comparison to conventionally fuelled vehicles, it is an increasingly attractive investment when the long-term running costs are considered. Do you want to make it easier to track and claim mileage allowance payments and advisory electricity rates? The Mooncard Mobility fuel card may be just the solution you are looking for.
Get in touch for a no-strings-attached demo and a tailor-made quote corresponding to your business needs.