As the UK government proposes to ban sales of all new non-electric cars by 2030, and with top-level electric vehicles starting to out-perform their petrol and diesel counterparts in terms of speed, comfort and handling, many businesses and employees are already shifting towards fully electric company cars. Whilst the initial investment involved in providing or acquiring an electric car might in some cases be higher, these vehicles are generally cheaper to run. This also means that a mileage claim for an employer-provided electric car will be much lower than for other cars.
The following guidance looks at the rules on claiming mileage for an electric car, together with the current electric car mileage rates, plus how to claim for charging a company car at home. We also look at claiming mileage for other vehicle fuel-types, including hybrid cars, as well as privately-owned vehicles used by employees for business journeys.
Claiming mileage for electric cars
Understanding the rules relating to submitting or processing a mileage claim for electric cars can ensure that mileage claims are dealt with fairly and efficiently.
Advisory fuel rates (AFRs) are issued quarterly by HM Revenue and Customs (HMRC). They are recommended rates — reviewed by HMRC at the beginning of every March, June, September and December — and provide specific rates that employees can use to claim back from their employer the cost of business journeys for company cars. These rates are advisory only, but will ensure that employees are not out of pocket when driving forms part of their job. As these rates are designed to only cover the cost of the fuel, and no other on-road costs, the rates are updated quarterly by HMRC to try and keep them in sync with fuel prices.
There are specific rates for vehicles run on either petrol, diesel and liquefied petroleum gas (LPG), each of which also has different rates depending on the vehicles’ engine size. These rates are calculated based on an average fuel efficiency figure for vehicles sold to fleets, and the latest forecourt prices across the UK, rounded up or down to the nearest whole penny.
There is also a separate and much lower flat rate for fully electric vehicles. The Advisory Electricity Rate (AER) is calculated similarly to an AFR, based on energy-efficiency data and the average cost of a unit of electricity at home.
AFR and AER rates can be used when an employer reimburses an employee for business travel in their company cars. They 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.
Electric car mileage rates for company cars
If an employee wishes to use an employer-provided electric car for business travel, the allowance per mile when compared with other fuel-types is significantly less. This is to reflect the cheaper running costs of fully electric vehicles, making any mileage claims submitted by employees for business journeys undertaken in an electric car much lower than for the same journey undertaken in either a petrol, diesel or LPG car.
The AER for a company-provided electric car is currently set at a flat rate of just 5 pence per mile. This means that if an employee has an electric car as a company car, they can only claim 5 pence for every mile undertaken on a business trip in that vehicle, although this has slightly increased from 4 pence per mile from up to 1 December 2021.
Hybrid cars still don’t have their own AERs/AFRs. All hybrids, including plug-ins, are reimbursed at the same rates as a petrol or diesel car, based on their engine size. This means that a hybrid vehicle will be charged at the following rates for petrol and diesel vehicles:
- For a company-provided petrol car, the rate is 13 pence per mile (for up to 1400cc engine size); 15 pence per mile (for between 1401 and 2000cc); and 22 pence (for over 2000cc)
- For a company-provided diesel car, the rate is 11 pence per mile (for up to 1600cc engine size); 13 pence per mile (for between 1601 and 2000cc); and 16 pence (for over 2000cc).
- For completeness, the mileage rate for an LPG car is 8 pence per mile (for an engine up to 1400cc); 10 pence per mile (for between 1401 and 2000cc); and 15 pence (for over 2000cc).
Can employees claim for charging a company car at home?
As far as HMRC is concerned, electricity isn’t a fuel, even though it now has a per-mile rate for drivers to claim back the cost of business trips in an electric car. However, like petrol or diesel, electricity used for business mileage doesn’t class as a benefit-in-kind for tax purposes and can be claimed as an expenses claim or added to an employee’s salary.
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, it’s often best for employees to claim the flat AER rate of 5 pence per mile.
The cost per mile will be even more for a plug-in hybrid company car, based on the AFR petrol or diesel rates. In most cases, these rates should be enough to cover the cost of the fuel and electricity used, especially if most of the business journey is on battery power.
What are the rules for claiming mileage for privately-owned cars?
The rules behind what an employee can claim differ based on the ownership of the car being used for business travel, as company cars are treated differently to privately-owned cars. In addition to the quarterly advisory fuel rates (AFRs), HMRC also provides annually updated suggested fuel reimbursement rates for business journeys undertaken in an employee’s own car. This type of payment is known as AMAP (Approved Mileage Allowance Payment).
AFR rates only apply for company-provided vehicles, where a much higher standard rate applies for mileage claims if the employee is using a privately-owned vehicle for business travel. This is because the AMAP is designed to reimburse the employee for both fuel and other on-road driving costs, including insurance, and general wear and tear. This is also an allowance ‘per employee’, so it doesn’t matter if multiple cars are used during the year.
What are the electric car mileage rates for privately-owned cars?
Essentially, where the employee uses their own car the mileage rate for a fully electric car is the same as for a petrol or diesel car. This is set at 45 pence per mile for the first 10,000 miles, then 25 pence per mile for any additional mileage. The electric vehicle employee owner-driver can also claim 5 pence per mile for each passenger they drive on the same business trip.
The mile per hour rate for business journeys in privately-owned vehicles was increased from 40p pence per mile to 45 pence per mile back in 2011/12, and hasn’t changed since. For employees who use their own car for business travel, the 45 pence per mile allowance is usually sufficient for covering the cost of fuel, insurance and maintenance, although HMRC may need to revisit the longstanding mileage allowance if fuel costs continues to increase.
What are the rules for paying tax on business mileage?
Employers have certain tax, National Insurance (NI) and reporting obligations if they cover the costs of their employees using their own vehicles for business travel. There are two separate schemes used to deal with these mileage expenses: one for tax and one for National Insurance.
Employers are allowed to pay their employee a certain amount of money each financial year for using a privately-owned vehicle for business journeys without having to report this to HMRC. These are known as Mileage Allowance Payments (MAPs), where the level of MAPs that can be paid without having to deduct and pay tax on these is known as an ‘approved amount’.
To calculate the ‘approved amount’, the employer must multiply an employee’s annual business travel by the rate per mile for their vehicle. For hybrid (or petrol or diesel) cars and vans this is set at 45 pence per mile for the first 10,000 miles, and 25 pence per mile over this mileage. For example, if an employee travels 12,000 business miles in their car, the approved amount for the year would be £5,000 (10,000 x 45p plus 2,000 x 25p).
Anything paid above the ‘approved amount’ must be reported by the employer to HMRC on form P11D. The additional amount over the approved amount must also be added to the employee’s pay, with tax deducted and paid as normal.
The employer will not have to report to HMRC or pay tax on anything paid to their employee on anything below the approved amount, and the employee will be eligible to get tax relief (called Mileage Allowance Relief, or MAR) on the unused balance of the approved amount. The employer may want to make separate optional reports to HMRC for any unused balances under a scheme called the Mileage Allowance Relief Optional Reporting Scheme (MARORS).
However, an employee may receive a taxable benefit in connection with their electric car if their employer either pays for a vehicle charging point to be installed at the employee’s home, provides a charge card to allow access to commercial or local authority vehicle-charging points or pays to lease a battery for the employee’s car.
There’s no benefit-in-kind charge for employees charging their own cars at a workplace charging station, as HMRC doesn’t consider electricity to be a fuel.
As with tax, employers are allowed to pay their employees a certain amount of money each year without this becoming liable to National Insurance (NI) on relevant motoring expenditure (RME). This is known as a ‘qualifying amount’.
To calculate the ‘qualifying amount’ the employer will need to multiply their employee’s business miles in the earning period by 45 pence per mile.
If the RME provided by an employer to an employee in the earnings period exceeds the qualifying amount, they will need to add the excess to the employees’ other earnings for that earnings period when calculating Class 1 National Insurance (but not Pay As You Earn (PAYE) tax) through payroll. If the RME is below the qualifying amount, the employer will have nothing to report and no National Insurance to pay.
However, there’s no Mileage Allowance Relief for National Insurance, and the difference between RME and the qualifying amount cannot be carried forward to a later earnings period.
Mileage claims for electric cars FAQs
Can you claim mileage allowance on electric cars?
HMRC provides two suggested rates for business mileage: an advisory electricity rate (AER) for company cars (at 5p per mile) and approved mileage allowance payments (AMAPs) for privately-owned cars (at 45p per mile, reduced to 25p after 10,000 miles).
Do you get 45p a mile for an electric car?
If you use your own vehicle for business travel, most employers will pay 45p a mile to reimburse you for the first 10,000 miles, reduced to 25p thereafter. There is a flat rate of 5p a mile for company cars.
How do you calculate mileage on electric cars?
Mileage on electric cars is calculated using either a flat rate of 5p per mile for employer-provided vehicles, and the standard rate of 45p per mile, or 25p per mile after clocking up 10,000 miles, for employee-provided vehicles.
The matters contained in this article are intended to be for general information purposes only. This article does not constitute legal or financial advice, nor is it a complete or authoritative statement of the law or tax rules and should not be treated as such.
Whilst every effort is made to ensure that the information is correct, no warranty, express or implied, is given as to its accuracy and no liability is accepted for any error or omission.
Before acting on any of the information contained herein, expert professional advice should be sought.