Advisory fuel rates (AFR) for pure electric cars have been introduced by HMRC, in effect from September 1st.

The new Advisory Electricity Rate (AER), set at four pence per mile (ppl), will be published with AFRs (based on engine size) for petrol, diesel and LPG vehicles. Plug-in hybrid and hybrid cars will, however, be counted as a petrol or diesel model when calculating mileage reimbursements.

AFRs are principally used by employers reimbursing staff members for business travel with company cars, or when employees must repay fuel costs from private travel. Like existing AFRs, the new AER will be reviewed quarterly and will be considered free for tax and National Insurance purposes.

HMRC reported, in a statement to the Association of Car Fleet Operators (ACFO): “HMRC will accept that if employers pay up to the Advisory Electricity Rate of 4p per mile when reimbursing their employees for business travel in a fully electric company car there is no profit - there will be no taxable profit and no Class 1 National Insurance to pay.

“On a similar basis to Advisory Fuel Rates, employers can use their own rate which better reflects their circumstances if, for example, their cars are more efficient, or if the cost of business travel is higher than the guideline rate.

“However, if they pay a rate that is higher than the Advisory Fuel Rate and can’t demonstrate the electricity cost per mile is higher, they will have to treat any excess as taxable profit and as earnings for Class 1 National Insurance purposes.”

The announcement of the AER follows a years-long campaign by the ACFO pushing for the introduction of AFRs for both electric and plug-in hybrid vehicles, backed by a coalition of fleet industry representatives including the British Vehicle Rental and Leasing Association (BVRLA), manufacturers and leasing companies.

The absence of definitive mileage reimbursement rates, the ACFO argued, was a deterrent to plug-in vehicles' inclusion on company car lists.

The new AER, however, falls short of some ACFO recommendations.

John Pryor, ACFO chairman, said: “I am delighted that HMRC has listened to the voice of ACFO and its members and introduced an Advisory Fuel Rate for 100% electric cars and at the rate we recommended.

“Historically, HMRC has consistently said that it did not consider electricity to be a fuel so for it to make this change is a major leap and will assist all fleets operating and seeking to introduce pure electric cars.”

“We are disappointed that HMRC has not supported ACFO’s call for Advisory Electricity Rates to be introduced for plug-in hybrid petrol and diesel cars and range extended electric vehicles.

“Plug-in hybrid models are a major part of vehicle manufacturers’ future electrification programmes and, as a result, an increasing number of such vehicles will find their way onto company car choice lists due to their benefit-in-kind tax efficiency.

“But without an incentive linked to how such ultra-low emission vehicles are used on the road, it will not prevent drivers using the combustion engine alone in a plug-in hybrid car."

Pryor concluded: “Therefore, we will keep up the pressure on HMRC to introduce Advisory Electricity Rates for plug-in hybrid cars as well as for range extended electric vehicles.”