HMRC has published new mileage rates for fleets but, with fuel and electricity costs rising quickly, some drivers could be left out of pocket. Here’s why.

How do mileage rates work?

HMRC issues new Advisory Fuel Rates (AFRs) every three months. These are per-mile rates used by to reimburse company car drivers for business trips, or for fuel card users to pay their employers back for private mileage [1].

Quarterly adjustments are designed to keep pace with changing pump prices, and a calculated efficiency figure for fleet-operated cars, grouped by engine capacity and fuel type. Hybrids (including plug-in hybrids) use the same rates as their petrol or diesel counterparts, depending on their engine size.

The system much simpler for electric vehicles. A flat Advisory Electric Rate (AER) of 5p per mile applies to all models, regardless of their size and efficiency.

What are the latest advisory fuel rates?

New AFRs were announced on 25 May and apply from 1 June. These reflect petrol and diesel costs which increased by 28% and 35% respectively between April 2021 and April 2022 [2, 3] according to the AA, and relatively minor improvements to average vehicle efficiency. The new rates, and increases compared to the last quarter, are shown below:

Petrol (165.1p per litre):

Engine size	Applied MPG	AFR	Increase
Up to 1,400cc	52.7	14p	1p
1,401 to 2,000cc	44.9	17p	2p
Over 2000cc	30.0	25p	3p

 

Diesel (179.7p per litre):

Engine size	Applied MPG	AFR	Increase
Up to 1,600c	63.6	13p	2p
1601 to 2000cc	51.3	16p	3p
Over 2000cc	42.1	19p	3p

Source: HMRC

 

How are rates changing for electric vehicle drivers?

The AER isn’t changing. This remains fixed at 5p per mile for all electric vehicles, which already wasn’t covering charging costs for some models. That gap is widening as electricity becomes more expensive – the result of surging wholesale gas prices as economies recover from the Covid-19 pandemic.

 

• Public chargepoint operators began raising prices last autumn to cover costs [4]. Most rapid chargers on the strategic road network are now over 50p per kilowatt-hour, compared to 25-30p a year ago.
• Domestic electricity prices are capped by government regulator Ofgem and adjusted twice a year to reflect their operating costs. The latest price cap has increased the cost of home energy from 21p/kWh to 28p/kWh [5, 6].

 

This means the AER is unlikely to cover charging costs, as the following table illustrates:

	Home 28p/kWh [6]	Osprey 49p/kWh [7]	Gridserve Electric Highway 50p/kWh [8]	BP Pulse 150kWh 55p/kWh [9]	InstaVolt 57p/kWh [10]	Ionity 69p/kWh [11]
Audi e-tron Sport 50 quattro	10p	18p	19p	21p	21p	26p
Fiat 500 Icon Hatch	6p	11p	11p	12p	13p	16p
Kia e-Niro ‘3’ 64kWh	7p	13p	13p	14p	15p	18p
Polestar 2 Long Range Single Motor	8p	13p	14p	15p	16p	19p
Volkswagen ID3 Life Pro	7p	12p	12p	14p	14p	17p

 

In context, a Kia e-Niro driver covering 10,000 business miles per year and charging mostly at home would be £18 per month out of pocket. Using public chargepoints could leave them with a reimbursement shortfall of between £63 and £105 per month. There’s also no straightforward way for fleets to adjust those rates to reflect what they are paying without risking tax and National Insurance implications.

 

Matthew Walters, LeasePlan UK’s Head of Consultancy Services explains:

“While we would have expected the Advisory Fuel Rate for petrol and diesel vehicles to have increased by more than 2p and 3pm per mile respectively, we were most surprised to learn that there has been no change at all to electric vehicle rates. Our concern is that the Government’s revised Advisory Fuel Rates will leave all drivers out of pocket, as they don’t accurately reflect the cost at the pump or the plug.

“Of course, HMRC guidance states that you can either pay Advisory Fuel Rates or pay based on ‘Actual Costs’. However, no guidance is or will be given as to what methodologies will be recognised when calculating these costs. Furthermore, calculating the Actual Costs for an EV is often a complex process due to the mix of home energy and public charging and the different VAT rates involved. Regardless of the challenges, businesses will need to review their reimbursement policies given this missed opportunity. We’d recommend that they speak to their leasing partners, who should be able to advise them on established methods.”

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REFERENCES:

[1] HMRC. (n.d.). Advisory fuel rates. [online] Available at: https://www.gov.uk/guidance/advisory-fuel-rates [Accessed 26 May 2022].

[2] The AA (2021) Fuel price report (April 2021). [online] Available at: https://www.theaa.com/~/media/the-aa/pdf/motoring-advice/fuel-reports/april-2021.pdf [Accessed 26 May 2022].

[3] The AA (2022) Fuel price report (April 2022).  [online] Available at: https://www.theaa.com/~/media/the-aa/pdf/motoring-advice/fuel-reports/april-2022.pdf [Accessed 26 May 2022].

[4] Autocar. (2021). UK EV charging firms raise prices as energy crisis bites. [online] Available at: https://www.autocar.co.uk/car-news/business-environment-and-energy/uk-ev-charging-firms-raise-prices-energy-crisis-bites [Accessed 4 Feb. 2022].

[5] Ofgem. (2021). Record gas prices drive up price cap by £139 – customers encouraged to contact supplier for support and switch to better deal if possible. [online] Available at: https://www.ofgem.gov.uk/publications/record-gas-prices-drive-price-cap-ps139-customers-encouraged-contact-supplier-support-and-switch-better-deal-if-possible [Accessed 26 May 2022].

[6] Ofgem (2022). Price Cap to Increase by £693 from April. [online] Ofgem. Available at: https://www.ofgem.gov.uk/publications/price-cap-increase-ps693-april [Accessed 26 May 2022].

‌[7] Osprey Charging. (n.d.). Find EV Charging Stations Near You | Osprey Charging Network. [online] Available at: https://ospreycharging.co.uk/find-our-ev-charging-stations/ [Accessed 26 May 2022].

‌[8] Gridserve (2022). Gridserve Electric Highway Pricing Update. [online] Available at: https://www.gridserve.com/2022/05/02/gridserve-electric-highway-pricing-update/ [Accessed 26 May 2022].

‌[9] BP Pulse. (n.d.). Polar Network Pricing. [online] Available at: https://network.bppulse.co.uk/pricing/ [Accessed 26 May 2022].‌

[10] InstaVolt (n.d.). Public EV Charging Rate. [online] Available at: https://instavolt.co.uk/rates/ [Accessed 26 May 2022].

[11] Ionity. (n.d.). How much does it cost to charge at IONITY? [online] Available at: https://support.ionity.eu/en/general-questions/how-much-does-it-cost-to-charge-at-ionity [Accessed 26 May 2022].