HMRC increases advisory electricity rate to 8ppm

HMRC has announced that the advisory electricity rate (AER) will increase from 5ppm to 8ppm from December 1.

The rate, used to reimburse drivers with electric company car, will also now be reviewed quarterly in line with advisory fuel rates (AFRs).

The move will be welcomed by the fleet industry which has long campaigned for an increase in the AER and for it to be reviewed on a quarterly basis.

Thomas McLennan, head of policy and public affairs at the British Vehicle Rental and Leasing Association (BVRLA), wrote on LinkedIn: “Some good news to start the day - the AER will increase to 8ppm from 1 December 2022.

“Even more importantly HMRC has stated that in line with advisory fuel rates (AFRs), this electric rate will also be reviewed quarterly from 1 December 2022."

He continued: “The BVRLA and Association of Fleet Professionals (AFP) have been pushing hard for AER reform given rising electricity prices.

“I know 8ppm will not the be level all drivers are looking for, but it is an improvement. Critically the shift to quarterly review is a big win for fairness.

“We will carry on engaging with HMRC to push for the continued evolution of the AER.”

Paul Hollick, chair of the Association of Fleet Professionals (AFP), said: “We very much welcome this move, which has been made at least in part to our campaigning in conjunction with the BVRLA..

"An AER rate of 8ppm is much closer to real world costs for the vast majority of electric vehicle drivers and will allow much fairer reimbursement – although it remains too low for both vans and all drivers who don’t have home charging.

"However, probably just as significant is the news that we will now see quarterly AER reviews in the same way as for AFRs, something that is clearly important at a time when energy and other EV running costs have been increasing rapidly.”

The AER was originally introduced in 2018. It was calculated using two key elements: the average cost of electricity in the UK from the Department for Business, Energy and Industrial Strategy (BEIS); and average efficiency figures based on what battery electric vehicles (BEVs) were on the market.

Both of these elements have changed fundamentally over time.

In 2017, the average cost of standard electricity in the UK was 14.4p per kWh and was used to calculate the first AER, which was introduced in September 2018. The current AER is based on the 2021 average UK electricity price of 18.9p/kWh.

Shortly after the annual average figure was published late last year, the AER was increased for first time, from 4p to 5ppm, thanks to a campaign again orchestrated by the BVRLA and the AFP.

Just one in eight drivers (12.2%) thinks that the current 5ppm reimbursement rate reflects the true cost of charging an EV, according to a Fleet News poll. 

Almost three-quarters (73.5%) of respondents believe it should be 10ppm or more, while one in five (20.2%) say it should be three times the current rate, with drivers receiving 15ppm to cover their charging costs.