HMRC slashes electric car reimbursement to 8p/mi.

The HMRC has recently made changes to the Advisory Electric Rate (AER) for fully electric cars, reducing it by 1ppm. This adjustment comes alongside the announcement of new Advisory Fuel Rates (AFRs) for the upcoming quarter.

Effective from 1 June 2024, the AER will now stand at 8ppm.

These rates are the recommended amounts by HMRC for reimbursing employees for business travel in their company cars. While employers can choose to pay higher rates if necessary, they must provide evidence to justify such payments to avoid potential tax implications.

For fully electric cars, the AER has been decreased to 8ppm starting from 1 June 2024 – down from the previous rate of 9ppm, which itself had been lowered from 10ppm on 1 December.

This latest reduction is expected to spark fresh concerns regarding the adequacy of the AER, as some drivers may find themselves financially disadvantaged.

Initially introduced at 4ppm in 2018, the AER had seen incremental increases to 5p in December 2022, 8p on 1 March 2023, and a further rise to 10ppm from 1 September. The rate is determined based on data from the Department for Energy Security and Net Zero, the Office for National Statistics (ONS), car electricity consumption rates from the Department for Transport (DfT), and annual sales volumes of cars to businesses (utilizing a Fleet Audits average over the past three years).

The DESNZ’s yearly published “pence per kilowatt-hour” cost is adjusted by the quarterly ONS Consumer Prices Index for electricity to accommodate fluctuations in prices every quarter. The yearly equivalent rate value is then calculated by combining the cost of electricity per mile for each model provided by the DfT with electricity price data from DESNZ and ONS. By analyzing company car sales data from the past three years, a weighted average value for the electricity costs per mile for a fully electric car is derived.

The decrease in the AER coincides with an upward trend in most Advisory Fuel Rates. The petrol rates for smaller and mid-sized engine cars have increased by 1ppm, while cars with engines exceeding 2,000cc have seen a 2ppm rise to 26p. Diesel rates have all increased by 1ppm, while LPG rates remain unchanged.

The following are the updated AFR tables effective from 1 June 2024, with the previous rates indicated in brackets:

Engine Size

Engine Size

Moreover, hybrid cars are classified as either petrol or diesel vehicles for advisory fuel rates, and the comprehensive list of rates can be accessed for review along with the computations involved.