Some confusion has been reported over how businesses should calculate mileage expenses rates for electric and hybrid company cars. This confusion has arisen largely because HMRC’s advisory fuel rates, or approved mileage allowance payments, only cover petrol and diesel cars. There are no separate ‘approved’ rates for electric or hybrid vehicles.
Currently, whilst HMRC does recognize that employees should be reimbursed for costs incurred for business travel, they do not currently recognize electric charging costs as a ‘fuel’ expense and do not, therefore, currently publish separate rates.
HMRC’s advisory fuel rates can be used to work out mileage costs in certain situations, for example, where an employer reimburses an employee for fuel they have used on business travel in a company car, or where an employee is required to repay the cost of fuel used for private travel. Where the employer uses the advisory fuel rates (or lower rates) then no liability to tax or NICs will arise on the payments and they do not need to be reported to HMRC.
The treatment of mileage rates is relatively straight-forward for hybrid cars – they are treated as either petrol or diesel for the purpose of the advisory fuel rates, so employers can just use the appropriate current rates.
The situation is more difficult for employers with employees who drive electric cars as company vehicles. Such employers could use the advisory fuel rate based on the lower of the petrol or diesel tariff, or the calculated cost of the electricity used from a domestic supply to charge the car. Another option would be to pay a rate that can be calculated accurately as a true cost to the employee. Whichever method is used to reimburse mileage, it is imperative that the employer maintains adequate records to substantiate that the correct amount has been paid. Failure to keep adequate records may lead to additional tax and NIC liabilities, and penalties.