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Business mileage payments for electric and hybrid vehicles.

By 25th June 2018

With the number of electric cars in the UK now exceeding 155K and interestingly over 5K vans, business use and how to work out mileage reimbursements now can present a considerable problem.   Business mileage is dependent on several factors. First and foremost, who owns the car: employee or business and if it is a company car whether it is hybrid or pure electric.

Let us have a look at personally owned cars first. It’s pretty much business as before if an employee uses their own electric car for business purposes, Approved Mileage Allowance Payments (AMAPs) apply in the same way as for petrol or diesel cars and remember:

  • Any reimbursement by the employer for business mileage is tax and NIC free provided it is no higher than the AMAP rates.
  • Reimbursements in excess of the AMAP rates are taxable and must be reported to HMRC.
  • If the employer reimburses at a rate lower than the AMAP rates, the employee can claim Mileage Allowance Relief.

 However for Company Cars the complications start to set in. For hybrid company cars it is straightforward – the normal diesel / petrol Advisory Fuel Rates (AFRs) can be used to reimburse employees for business travel where the cost of fuel no matter what type - petrol, diesel or electricity - was incurred personally.

But it becomes complicated for pure electric company cars. Tax law does not treat electricity as a fuel.  This means that, where an employee charges a pure electric company car themselves, their employer cannot use AFRs cannot to reimburse them.

If the employee is reimbursed, then the tax treatment depends on the use of the car: purely business, personal or mixed use. If the employer does not reimburse them, employees should be entitled to a deduction under for the actual electricity cost of business miles travelled.

This raises the practical difficulty of identifying the cost of the electricity used during business miles travelled. This may be more straightforward where a commercial charging point is used, but could be difficult to establish where a company car is charged at home.

This complexity puts employees with pure electric company cars at a disadvantage compared with those with hybrid company cars (and those who use their own electric cars for business mileage).

Another good reason to check with your accountant before embarking on positive environmental choices for new company vehicles. However, with the rise in numbers on the road, it should be expected that the Government will need to address and clarify the tax situation before too long.

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