Recent changes to mileage reimbursement rates for electric vehicles (EVs) are a step in the right direction, but fall short of accurately reflecting the widely varying costs of charging, experts warn. These inconsistencies can lead to unfair reimbursements for drivers and create potential tax complications for employers.
Understanding HMRC’s Approved Mileage Rates
His Majesty’s Revenue and Customs (HMRC) provides per-mile rates each quarter, designed to help drivers claim back business-related fuel or electricity expenses. Traditional petrol and diesel vehicles—including hybrids—have three different rates based on engine size. Electric vehicles previously operated under a single Advisory Electric Rate (AER) introduced in 2018, applying uniformly regardless of the car’s size or charging location.
The New Dual-Rate System and its Shortcomings
To address criticisms that the previous single-tier system didn’s cover EV charging costs adequately, a higher rate for public charging was implemented on September 1st. Guidance released on October 6th instructs fleets to calculate how much of a journey utilized home versus public charging and reimburse drivers accordingly, using rates of 8p and 14p per mile, respectively.
However, this new system still faces challenges. Tom Rowlands, managing director of global EV solutions at expenses specialist Corpay, notes that the disparity between the cost of different public networks and home charging tariffs can be as high as 50-to-1. This significant price difference isn’t adequately accounted for by the current dual-rate system.
The Problem of Volatility and Individual Charging Behavior
Corpay’s analysis demonstrates the issues with the current rates. The 8p/mile AER might cover the cost of home charging on a standard electricity tariff. But if a driver uses cheaper off-peak rates at home, an employer could end up paying significantly more to reimburse mileage— potentially £1,600 for 20,000 miles, compared to the driver’s actual cost of £500. Alternatively, relying solely on public networks for 20,000 miles could cost a driver £4,320 to fuel, with HMRC’s rates allowing a reimbursement of only £2,800.
As Rowlands points out, “Electricity pricing is volatile and far more dependent on individual behavior than petrol or diesel.” Even with the two-tier system, a flat rate remains a simplified approach. It fails to consider the broad range of electricity tariffs and varying real-world charging habits, which can lead to perceived unfairness and a lack of transparency in how rates are applied.
Employer Responsibilities and Tax Implications
While fleets have the option to set their own per-mile rates, Deloitte UK’s automotive tax director, Simon Down, cautions that employers must demonstrate these rates are fair and justifiable. They need to avoid creating a situation where drivers are effectively subsidizing company profits. Such practices could trigger additional tax liabilities for the employer.
