ICAEW’s Tax Faculty believes that HMRC’s guidance and tools for the tax treatment of the reimbursement of electricity costs do not reflect the law. The guidance says that there is a tax and NIC liability where an employer reimburses their employee for the cost of charging a company-owned, wholly electric car that is available for private use.
HMRC adopts this interpretation in its:
- online tool Check if you need to pay tax for charging an employee’s electric car: Your payment to your employee counts as earnings; and
- guidance, for example EIM23900 Car benefit: special cases: issues relating to electric cars, which provides tables supported by flowcharts setting out its view of how different scenarios are subjected to income tax.
Both say that reimbursements by employers to employees of the cost of electricity used to charge company-owned, wholly electric cars, available for private use, are subject to tax and NIC.
The faculty has looked at s239(2), Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003), Payments and benefits connected with taxable cars and vans and exempt heavy goods vehicles, in conjunction with s149(4), ITEPA 2003, Benefit of car fuel treated as earnings. Its interpretation is that reimbursements by employers to employees for the cost of charging a company-owned, wholly electric car are included in the car benefit charge.
In simplified terms, s149(4) says that electricity supplied for a wholly electric car is not fuel, so the expenses referred to in s239(2) include the reimbursed costs of electricity used to charge wholly electric cars that are available for private use.
Where company-provided, wholly electric cars available for private use are charged by employees at home, the faculty recommends that reimbursements claimed by employees are calculated using an accurate reading of the amount of electricity used to recharge the car, and the amount paid by the employee for that electricity. Failure to do this could mean that the reimbursement should be treated as funding part of the employee’s domestic energy bill. This would make the reimbursement liable to income tax and NIC. It is not an expense incurred in connection with a taxable wholly electric car.
ICAEW’s Tax Faculty and other professional bodies are currently in discussions with HMRC, with a view to HMRC correcting its guidance and tools.
Advisory electricity rate for wholly electric company cars
HMRC accepts that there is no profit where employers pay employees up to 5p per mile when reimbursing employees for business travel in a wholly electric company car, where the employee has paid for the electricity.
The Advisory Electricity Rate (AER) was introduced on 1 September 2018 and announced in the Employer Bulletin August 2018. The rate of AER was increased from 4p per mile to 5p per mile from December 2021, announced in the fourth quarterly advisory fuel rates for 2021. The current rate, which is 5p per mile, is published in HMRC’s Advisory Fuel Rates (AFR) guidance for employer-provided cars, in the text under the subheading "Rates". Employers can use a higher rate, but need to be able to justify that there is no profit to their employees.
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