Questions around reimbursing employees’ electricity costs for company electric cars


The Institute of Chartered Accountants England & Wales (ICAEW) has highlighted that HMRC’s guidance on a business reimbursing an employee the electricity costs for charging company-provided electric cars, conflicts with the law.

HMRC’s guidance states that there is an income 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.  The ICAEW has identified that this guidance flies in the face of certain sections of the Income Tax (Earnings and Pensions) Act 2003 (ITEPA 2003).

As a result the ICAEW recommends that where company-provided, wholly electric cars available for private use are charged by employees at home, reimbursements claimed by employees should be 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.

The ICAEW and other professional bodies are currently in discussions with HMRC to encourage them to correct their guidance and tools in relation to this.

HMRC introduced the Advisory Electricity Rate in September 2018 – and increased the rate to 5p per mile from December 2021.  This rate demonstrates that HMRC accepts that there is no profit to employees where employers pay them 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.  Employers can use a higher rate than 5p per mile, but need to be able to justify that there is no profit to their employees.

Castletons Accountants

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