Electric vehicles (EVs) offer many benefits for businesses, including the potential for lower costs and more environmentally-friendly transportation.
However, when it comes to reimbursing employees for business-related travel, EVs may seem more complicated than traditional petrol or diesel vehicles.
In this article, we'll clarify the differences and provide guidance on how to reimburse employees for the use of electric company vehicles, salary sacrifice cars, or personal vehicles (grey fleet) used for business purposes.
One of the reasons it’s worth having different reimbursement strategies for electric versus traditional fuels is because of the varying methods of delivery.
Generally, petrol and diesel are stored at a specific location, and you pump which ever fuel you need into your vehicle’s tank – getting you straight back on the road. The price of fuel will vary between each location, and there are savings to be had by finding the cheapest fuel, but the variance in price of a few pence per litre (and two or three pounds for a full fill up) are small when compared to the different prices you could get from the different types of EV charging location.
Drivers of electric vehicles have lots of opportunities to charge on-the-road but also, in many cases, access to charging at home and at work.
This means charging for a vehicle could come from a home energy tariff, which today is around 34 p/kWh at the standard rate, which compares favourably to public charging on high speed devices which has an average costs of 67 p/kWh.
A 60 kWh battery charged at the 34 p/kWh home rate would cost £20.40 compared to up to £40.20 on a typical public charger. This range widens when you take into account some of the specialist or off-peak overnight home charging tariffs EV drivers can take advantage of, which can be as low as around 10p kWh.
But there are hundreds of prices in between these two extremes, depending on the many home tariffs available and rates offered by public charge point operators.
At its core, a public EV charger is not unlike a fuel pump. Arrive, connect and let it fill the vehicle up there and then. In that sense, a card such as Allstar One Electric works for electricity just as it does for petrol and diesel.
But at home, it can be significantly different. Often, the vehicle will be charging while power is being used elsewhere in the house, so the driver needs to be able to work out what quantity of energy was used for the car or van versus the overall usage as part of their energy bill.
Also, an electric vehicle may be plugged in at home but not necessarily charging, if that charge is scheduled for a later (and often cheaper) time. So, the actual price paid may not be the tariff rate at the point in time when the vehicle was first plugged in.
And what happens when the vehicle starts charging at a peak rate of, say 34p per kWh, but then the tariff switches to an off peak one of 20p when the battery is only partially full? How do you work out the cost of the charge cost across each pricing period?
The cost of electricity is multi-faceted. Whether you’re the driver, finance, line, or fleet manager, unpicking all of this to ensure accurate reimbursement could be extremely complex and time consuming.
One way to reimburse drivers is by using the Advisory Electricity Rate (AER). It’s a simple, single pence per mile figure, just like the Advisory Fuel Rate (AFR) for business travel using petrol and diesel cars, enabling drivers to reclaim for all business mileage driven in an EV. Currently it is set by HMRC at 8p per mile, but a new rate may be announced from March 2023.
While the AFR may work fine for petrol and diesel because the variances in pricing are much smaller, you need to decide if a single figure can accurately recompense a set of payments for your fleet drivers that might vary in cost by more than double and also whether you, and your employees, will be happy with this.
Typically, we use a figure of 3 miles for every kWh as the general measure of EV efficiency to compare against traditional fuelling. But even then, at the home energy price quoted earlier, this represents a cost to the driver of more than 11 p/mile, an increase on the 8 p/mile AER – and effectively penalising the driver 3 p per mile for operating an electric vehicle. It might not sound like much, but over 20,000 miles a year, that driver is £600 out of pocket.
At some point, on some chargers and with more efficient drivers or vehicles, the 8 p/mile AER figure will be perfectly accurate. But as we’ve seen, the likelihood of either the employer or employee being out of pocket are high because of the extreme variance in costs.
Whether you have grey fleet, salary sacrifice or company car and van drivers using electric vehicles, reimbursing them accurately for the electricity they’ve used is likely to benefit both you and them.
For a start, you’ll quickly build a picture of the true cost of operating the EVs on your fleet. While the AER will give you a rough idea of your EV spend, it won’t really tell you how those EVs are being used, or where and when they are being charged.
In one scenario, you might be paying out more than you need to, but in another you could have disgruntled employees who resent using an EV for business because they are personally subsidising the cost of operation.
Allstar Homecharge, powered by Mina, takes the hassle out of reimbursing drivers by accurately monitoring each charge that occurs at home and making payments directly to the driver’s energy supplier, for the actual cost of the energy used.
For employees in company vehicles this means there are no arguments or confusion, and they know the exact cost is covered every time, increasing employee satisfaction with no out-of-pocket expenses, administration or ‘bill shock’.
Homecharge even works for grey fleet and salary sacrifice EVs too. The employee just needs to keep a track of their business and private mileage, and pay back the private proportion, often via salary deduction. Tools such as Allstar’s Business Mileage Monitor can help simplify this process and drivers can also see their home charging history and payments made through the Allstar Homecharge portal.
As the consumption will be measured accurately by kWh, there will be complete clarity: for example, if a 60kWh charge cost £16.80 and there are 200 miles driven, of which 120 were business, the driver would be reimbursed £10.08 for the business mileage, credited against their energy bill.
While using the single AER figure might seem a simple solution at first, as we’ve seen it can create a lot more problems down the line. It’s a blunt instrument used to solve a complex issue.
But the irony is that while electricity tariffs can seem complicated, technology can actually provide a simple solution, in the form of Allstar Homecharge, and the Allstar One Electric card. Digital innovation makes accurate reimbursement for electric vehicles a reality.