HMRC mileage rate leaving electric company car drivers 'out of pocket'

Electric vehicle (EV) drivers reimbursed for business mileage using HMRC’s advisory electricity rate (AER) are being underpaid by hundreds of pounds a year in some cases, new research suggests.

The analysis, conducted by Paua, discovered that a company car driver doing as little as 20% of their charging on the public network can be faced with a shortfall of £200 or more, when covering the cost of work travel using the Government’s AER rate of 7 pence per mile (ppm).  

Higher mileage drivers and those who charge away from home are most effected. 

A Polestar 2 driver doing 6,000 business miles a year, with the majority of its charge sourced through public chargers, would be out of pocket by £800 every year, while a Jaguar iPace driver covering 10,000 business miles a year with all of its charge from public chargers would suffer a shortfall of more than £2,000.

Paua explains that businesses have a choice when they compensate their EV drivers for their business miles; pay them a fair rate or pay them according to HMRC’s AER. 

The problem with the Government’s rate is that it massively undercompensates drivers as soon as they leave their home driveway, says Paua.

Some businesses choose to address the shortfall with an additional payment to the driver. This additional payment needs to be “grossed up” in order to be compliant.

Paua has launched an online calculator to enable drivers to understand how much out of pocket they are. 

Inputting data around their vehicle, their mileage and energy costs provides them with a snapshot of the impact that this has on them.

To help employers fairly compensate drivers for their electric business miles, Paua launched Paua Reimburse earlier this year. 

Paua Reimburse captures the charging costs for home and public and splits the business and personal usage.

The data collected ensures that Paua can calculate a bespoke rate for the driver for their claim period. 

Niall Riddell, CEO at Paua, said: “Paua makes it simple for business to properly compensate employees and be compliant with HMRC.

“Businesses are pushing drivers to adopt electric vehicles but without the right compensation mechanisms in place they risk underpaying their drivers for the business miles they complete. This can leave them in a sticky situation.”

Businesses who want to find out more can contact Paua directly for a consultation to review the best approach available to them. 

For more information on decarbonising fleet operations, read Moving to Net Zero, a Fleet News special report.