New advisory fuel rates for electric company cars

HM Revenue & Customs (HMRC) has recently announced new Advisory Fuel Rates (AFRs) that will take effect from 1 June 2024.

These changes include a reduction in the Advisory Electric Rate (AER) for electric vehicles – which can be highly tax efficient.

Many businesses have invested in electric fleets, which presents a slight problem for business owners.

Should you reduce your rates in line with the AER or stick with your current rates? Here’s everything you need to know.

Key changes in the AFRs

Below is a breakdown of the key changes made to the rates – these are advisory, however, so you have no obligation to follow them to the letter.

• Electric vehicles: The AER has been reduced from 9 pence per mile (ppm) to 8ppm. This rate is intended to cover the cost of electricity used for business travel by electric company car drivers.
• Petrol: Rates have increased by 1ppm for engine sizes up to 2,000cc, and by 2ppm for engines over 2,000cc.
• Diesel: Rates have increased by 1ppm across all engine sizes.
• LPG vehicles: Rates remain unchanged across all engine sizes.

How does the AER calculation work

In essence, the AER is derived from data on electricity costs and vehicle consumption rates.

The Department for Energy Security and Net Zero (DESNZ) provides the annual “pence per kilowatt hour” cost, which is then adjusted quarterly by the Office for National Statistics (ONS) Consumer Prices Index for electricity.

This data is combined with vehicle-specific electricity consumption rates and business car sales data to calculate a weighted average cost per mile for fully electric cars.

The Association of Fleet Professionals (AFP) suggests having different rates based on access to home charging and vehicle type (cars versus vans) which could provide a more accurate reflection of actual costs and improve fairness among employees (this is yet to be implemented).

Responding to the changes

You’ll want to review how the new AER compares to the actual costs incurred by your employees for charging their electric vehicles.

If the new rate falls short, consider whether this might lead to dissatisfaction or financial strain for your employees.

It’s important to remember that although HMRC sets the advisory rates, businesses can set their own reimbursement rates.

So, if the new AER does not cover the true costs, you might want to consider offering a higher reimbursement rate to ensure employees are not out of pocket.

We can provide tailored advice to ensure your reimbursement policies meet both regulatory requirements and the needs of your employees.

For more information, or guidance based on your unique circumstances, please get in touch.