Over the next few years, companies which allow their employees to drive their own car for business are increasingly going to find they are using electric vehicles. So how do they reimburse grey fleet drivers who plug in at home and on the road?
Drivers using their own electric car can apply the standard approved mileage allowance payments (AMAP) already in place for petrol and diesel vehicles. Not only do these rates cover the cost of the electricity, but also are intended to reimburse wear and tear, depreciation and insurance for those working miles.
Currently these rates are set at 45p per mile for the first 10,000 mile and 25p per mile after that.
These rates have been in place since 2011, and so were calculated with petrol and diesel in mind. However, electric costs can be very different, and not least because the price of electricity can vary hugely depending on where it is sourced. At home, it might be as low as 10p per kWh, while using a public charger might cost seven or eight times that.
Electric uptake among company car fleets is much higher than in the private sector, due to factors such as the higher cost of the vehicles and the tax incentives for corporate drivers, but as the price comes down and the availability of models increases, more and more private buyers may go electric, albeit at a slower rate than company car drivers.
Paul Hollick, chair at the Association of Fleet Professionals (AFP), says: “The rate of change for grey fleet is much, much slower. Among private motorists using their car for work purposes, those opting for PHEVS and EVs are still very much the outliers and that situation may well persist for a while.
“For organisations who are determined to work towards low-carbon and net zero futures, this is a genuine issue and, we believe, one of the major challenges for fleets over the next few years.”
While the grey fleet is typically made up of cars employees have sourced themselves and bought with their own money, there is a fast-growing new grey fleet sector: salary sacrifice.
The sector is booming: the British Vehicle Rental and Leasing Association’s Leasing Outlook Survey showed that the number of salary sacrifice cars had risen by 34% year-on-year. It said there were more than 42,000 EVs funded this way by the end of 2022, but leasing companies expected ‘mountains of orders’ this year as salary sacrifice growth continues.
This is because of the low benefit-in-kind taxation on electric vehicles, meaning companies can put in place salary sacrifice schemes for employees, giving them a cost-effective way to get a new car by giving up a part of their salary before income tax in return for a company car. As it is technically a company car though, employees can’t be reimbursed for electricity using the AMAP rates.
Paul Hollick recommended that fleets put in place measures to cover the costs of this new grey fleet. He said: “These are currently very attractive while electric car taxation remains low and represent an attractive potential benefit to many employees. Also, because they are operated by third parties, they require little additional resource from the fleet department.
“It is also essential to ensure that infrastructure and reimbursement to support grey fleet EVs is being properly managed. That might mean helping grey fleet drivers who are keen on PHEV or EV adoption to install charging at home or, if they don’t have a driveway, to access charging elsewhere. It also means ensuring that reimbursement for charging is being carried out correctly, something that current AER rates don’t always cover.”
At present the Advisory Electricity Rate is set at 10p per mile, but with charging costs varying from as high as 70-80p per kWh on some public chargers and as low as 7.5-9p per kWh on off-peak and specialist EV home tariffs, a flat rate is not always the most accurate way to reimburse drivers.
Knowing exactly what their costs are every time they charge will make paying salary sacrifice drivers far easier, and employers should be able to pay directly for the electricity used.
Harvey Perkins, director at company car tax experts HRUX explains why: “In all circumstances, we’d always recommend first talking to an appropriate tax adviser if you’re unsure. But as electricity is technically not treated as a ‘fuel’ by HMRC, it is also covered as a connected benefit and no tax charge arises if the employer pays for the electricity. That’s for both business and private mileage.
“That’s starkly different from the rules that apply for petrol and diesel where private fuel incurs a significant and separate tax charge. That doesn’t mean companies need to reimburse charging costs for private mileage (companies generally don’t in a petrol and diesel), but it does mean there’s no tax charge if they do.
“This connected benefit rule even applies to the cost of a home charger if the employer provides one to the employee.
“HMRC says that when a company car (which a salary sacrifice car technically is) is charged by the employee at home the employer can pay for this electricity as long as the charger can identify which proportion of the employee’s overall electricity bill went into the car’s battery.”
One way to do this is by using Allstar Homecharge, an Allstar Chargepass solution .
Allstar Homecharge integrates with the driver’s home charger and energy supplier to calculate the true cost of charging their electric vehicle at home by taking real time data when the car is plugged in, and then paying their energy supplier directly*– ensuring drivers are never out of pocket, and you are in control of grey fleet costs.
They can also use the Allstar One Electric card to pay for electric at more than 13,000 public chargers, and you get full visibility of all electric vehicle charging spend on-the-road and at home in a simple dashboard.
Find out how Allstar Chargepass can make paying for fuel, on the road and at home EV charging simple and support your grey fleet.
*In order to comply with HMRC Vehicle Fuel Benefit businesses may require a process to identify and reclaim payments for private use.
The information provided on this website is for general informational purposes only. It is based upon our understanding of the guidance at the time of publication and it is not a substitute for legal or tax advice based on your own circumstances.