HMRC has introduced two separate rates for company electric cars – How should your business adapt?

Every three months on a quarterly cycle, HM Revenue and Customs (HMRC) reviews and updates its Advisory Electric Rate (AER) that will affect employees using a company car.

The latest review has yielded two separate rates for company electric cars that are designed to reflect the difference in cost between home charging and public charging points.

We break down the dual rates and what businesses should do to ensure that they are staying up to date with the latest reviews.

What is the new AER and why does it change?

Initially, it was believed that the single rate of 12 pence a mile was to be retained, but HMRC instead introduced a home charging rate of eight pence a mile and a public charging rate of 14 pence a mile.

The review itself is standard practice and is designed to ensure that the changing costs of charging an electric vehicle are accurately reflected.

It is believed that separating the rates based on where the car is charged will allow for the costs to be better reflected by the AER.

The home rate is calculated based on the average domestic electricity price of 27.04pk/Wh and an efficiency of 3.59 miles per kWh, while the public rate is calculated under similar principles but starts at a cost of 51pk/Wh.

Why does the AER matter for businesses?

Keeping up to date with the AER allows businesses to ensure that their records are accurate when attempting to claim money back.

Employees are eligible to claim costs back for using company cars, provided they are essential for fulfilling the duties assigned to them by the business.

Understanding the different rates could enable businesses to better inform practices around when and how to charge an electric vehicle.

However, the biggest thing of note with the AER is the likelihood of it changing again in a relatively short period of time.

The quarterly reviews mean it is possible for businesses to miss the changing rates, so we endeavour to raise awareness so that your calculations can remain accurate.

We can help you manage a range of business expenses and other financial matters with tailored expert guidance.

For advice and support in keeping pace with the AER and other financial changes, speak to our team today!