HM Revenue & Customs (HMRC) has recently announced new Advisory Fuel Rates (AFRs) that will take effect from 1 June 2024.
Among these changes is a reduction in the Advisory Electric Rate (AER) for electric vehicles, which can be highly tax efficient.
Many businesses have invested in electric fleets, posing a dilemma for business owners.
With numerous businesses adopting electric vehicle fleets, a dilemma arises for business proprietors. The question arises: Should you adjust your rates to align with the AER or maintain your existing rates? Here’s what you need to know.
Changes in the AFRs
You can find a summary of the key changes to the rates below. These are only advisory, so you are not obligated to adhere to them.
Understanding how the AER calculation works
In essence, the AER is calculated using data on electricity costs and vehicle consumption rates.
The Department for Energy Security and Net Zero (DESNZ) provides the annual “pence per kilowatt hour” cost, which is adjusted quarterly by the Office for National Statistics (ONS) Consumer Prices Index for electricity.
This data is combined with vehicle-specific electricity consumption rates and business car sales data to determine a weighted average cost per mile for fully electric cars.
The Association of Fleet Professionals (AFP) recommends establishing different rates based on access to home charging and vehicle type (cars versus vans) to more accurately reflect actual costs and ensure fairness among employees. This has not yet been implemented.
Responding to the changes
You should review how the new AER compares to the actual costs your employees incur when charging their electric vehicles.
If the new rate is insufficient, it could lead to employee dissatisfaction or financial strain. Remember, while HMRC sets advisory rates, businesses can establish their own reimbursement rates.
If the new AER does not cover the true costs, consider offering a higher reimbursement rate to ensure your employees are not out of pocket.
