Changes to the advisory fuel rates for electric company cars

EV company cars continue to be a popular employee benefit with more employers now making these available to their staff and an increased number of employees making use of their employer’s scheme when they need a new car.  

As a fairly new benefit which had some distinct differences from traditionally fuelled vehicles, the tax rules and guidance applicable to electric company cars are still developing and have undergone various changes over the last 5 to 7 years.  A further change has just been announced which companies and EV company car drivers need to be aware of.

New AFR category and rate

HMRC recently published the quarterly Advisory Fuel Rates (AFR) applicable from 1 September 2025, which contained a new category for EV cars and updated the guidance that accompanies the AFR in relation to the rates to use for EV cars.

The AFR is the maximum cost per mile that HMRC accept can be reimbursed to an employee in respect of the fuel used on business mileage in a company car, without there being a taxable profit for the employee (so no tax or NICs due on the payment). HMRC publish updated rates on a quarterly basis with rates frequently changing to account for the volatility in fuel prices. To date EVs have had a single advisory electric rate which has been between 7 and 10p depending on energy prices at the time.

The AFR is not relevant to employees using a personally owned EV.

From 1 September 2025, the AFR for electric cars will be:

The introduction of a higher rate when the power on which business miles are driven was charged at a public facility will be welcomed by the 1000s of employees, who have to date felt short-changed by the single rate per mile rate (which was based on domestic energy price data) given the significantly higher costs of charging at motorway services or other public facilities. 

The two-rate approach however brings with it some new challenges for companies to consider, form an opinion, create a policy and then communicate to employees – what rate do you reimburse at when the car has been charged partly at home and then partly at a public facility?

The update guidance issued by HMRC states the following:

For journeys where a company car is charged at both public and residential locations, you can apportion the mileage based on how much charging happens at each place. The apportionment calculation should be fair and reasonable.

The lack of clear instruction or an example for how HMRC envisage such apportionments to work in practice, leaves the matter for businesses to interpret and then assess whether that interpretation is “fair and reasonable”.  Clearly there will be some differences in interpretation so until either HMRC issue some clearer, more definitive guidance for these apportionment calculations, or HMRC review the approach your company takes and agrees it to be fair and reasonable, there will be some risk associated with this matter.  

A higher rate for mileage can be paid if it can be shown (with supporting documents) that the cost per mile was greater than the 14p public charging rate. In practice, determining the cost per mile of a journey requires a few calculations to establish but is possible using the data most electric cars are able to provide following each journey made.  

Any payment for business mileage deemed to be in excess of the AFR which cannot be supported as reflecting the actual cost per mile, will be treated as a profit to the employee and liable to PAYE tax and class 1 national insurance contributions.

Policy and communication

As with any subjective matter, consistency will be key for businesses and it is recommended that once you have established a position for how these apportionments will be applied in your organisation, that position is documented and made available to all staff to whom it may be applicable.  At a minimum, the policy should clearly state what information you will require from employees if they are claiming for a reimbursement which includes some public charging.

Companies should also review expense claim forms and processes to ensure these are able to facilitate the correct reimbursement for business mileage in an EV company car.

No change for fully reimbursed charging

It should be noted that this issue is only relevant if it is your company’s policy to only reimburse for the electric on business miles on your EV company cars.  If, as is allowed by the rules, you reimburse employees for the actual costs of charging their EV company cars irrespective of personal or business miles, then the change to the AFR does not impact you.  Reimbursement of actual costs, whether at home or on the road, can continue to be paid tax free and given rise to no benefit or profit to the  employee.

Should you require any assistance with this, or any other employment tax matter, please do not hesitate to get in contact.

The information contained herein is given by way of general guidance only, is correct and applicable only at the time of delivery and no action should be taken solely on the basis of the information contained herein. Ensors Accountants LLP will be pleased to provide further guidance on the issues, and how they might affect you. No liability is accepted by the firm for any actions taken without seeking appropriate professional advice.