Electric cars: Employee mileage claims and charging

Claiming mileage for electric company cars

If an employee wishes to use an employer-provided electric car for business travel, the company must decide how to reimburse them for the ‘cost of fuel’.

To help companies set this, HMRC issues Advisory Fuel Rates (AFRs) quarterly at the beginning of March, June, September and December each year.

These are the recommended rates and are designed to cover the cost of the fuel and no other on-road costs. Whilst they are advisory only, most businesses use these as the basis for reimbursing an employee for business travel in company cars.

It is important to note that:

• There are different rates for vehicles run on either petrol, diesel and liquefied petroleum gas (LPG), based on fuel efficiency figures and forecourt prices.
• For fully electric vehicles there is a separate and much lower flat rate known as the Advisory Electricity Rate (AER) which is currently 5 pence per mile for the 2022/23 tax year.
• All hybrids, including plug-ins, are reimbursed at the same rates as a petrol or diesel car, based on their engine size.

These rates can be used to reimburse employees using employer-provided company cars and can also be used when employees are asked to repay the cost of fuel used for private travel. However, they must not be used in any other circumstances.

You can view the latest Advisory Fuel Rates (AFRs) and Advisory Electricity Rate (AER) here.

Claiming mileage on employee-owned electric cars

Driving your own car on business can be expensive since any work trip means paying for fuel, and brings the car’s next service a few miles closer. Plus, there’s wear and tear, not to mention insurance and depreciation.

HMRC publishes Mileage Allowance Payment (MAP) rates, that show how much you can be reimbursed for your business motoring costs without having to pay any tax.

You should note that:

• Where an employee uses their own car, the mileage rate is the same for an electric car as it is for a petrol or diesel car. This is currently set at 45 pence per mile for the first 10,000 miles, then 25 pence per mile for any additional mileage.
• Furthermore, for employee’s driving their own electric car they can also claim 5 pence per mile for each passenger they drive on the same business trip.
• Employers can pay more than the approved amount, but this must be disclosed to HMRC via P11D and it will be treated/taxed as part of your salary.
• Employers aren’t obliged to pay MAP rates and if they pay less than the approved amount employees are able to claim tax relief on the unused balance (known as Mileage Allowance Relief (MAR). They will need to keep a record of the date and mileage of all business journeys and work out the different between what they were paid and the MAP rates.

Therefore, if an employer expenses at MAP rates, this suits employees who are driving the most fuel-efficient and lower maintenance cars.

Employees charging electric cars at home

In practice, it can be difficult to separate the cost of charging a car from the rest of an employee’s home energy bills, let alone differentiating between business and private mileage.

Therefore, sometimes it can be best for employees to claim the flat AER rate (currently 5 pence per mile in the 2022/23 tax year), which should be enough to cover the cost of the fuel and electricity used – especially if all or most of the business journey is on battery power.

For companies who reimburse employees for their charging costs there may be tax and national insurance to pay.

You can use this tool on GOV.UK to find out whether you or your employee will be liable for tax or National Insurance for charging an electric car.

Installing charging points at your employees homes

For companies who pay to install charging points at an employee’s home for charging company electric cars, there will be no benefit in kind, therefore it is a tax-free benefit.

This tax-free benefit is available regardless of whether the charging point is being installed at the employees own home or rented accommodation (though if renting, customers would need to have permission from their landlord to have a home charge point installed).

It may be advisable if the invoice is made to the company, to avoid HMRC claiming that the employee is the customer.

Furthermore, VAT is fully recoverable for the company on the purchase of the charge point if the employee advises the supplier that they are ordering the charging point as agent for their employer (and the supplier does not dispute this). Again, the fact that the company is making the purchase should be reflected in the invoice that the supplier raises, thereby providing evidence of the company purchase.

Employees charging electric cars at your workplace

A tax exemption applies for employee charging their own car, or one that they are driving or a passenger in, using a workplace charger.

Consequently, this charging is free of any associated benefit in kind tax charge. The exemption also applies regardless of whether the charge powers business or private journeys.

The exemption covers:

• the cost of the electricity
• the cost to the employer of providing the charging facilities, and
• any connected services.

However, the exemption only applies if the following conditions are met:

• the charging facility is provided at or near the employee’s place of work
• charging must be available to all the employees generally or those at the particular workplace should they wish to use the facilities, and
• the vehicle which is charged is one in which the employee is the driver or a passenger.

Installing charging points at your workplace

One further point on charging is that a first-year capital allowance of 100% of the expenditure is available for company expenditure on electric charge-point equipment.

The allowance is available for expenditure incurred before 1 April 2023 for corporation tax purposes and before 6 April 2023 for income tax purposes.

And finally, don’t forget cycling

Employees who use their own bicycle for work (i.e. for cycling on business, not to and from work) are entitled to 20p per mile, tax-free.

The 20p per mile payment is quite generous, so for employees visiting local clients it could be worth considering two wheels instead of four.