How does mileage allowance for electric cars work?
With the rise in electric vehicle adoption across the globe, finance teams and business travelers alike have questions about mileage allowances for electric cars.
Is there a standard mileage rate for electric cars? Does the finance department need to have its own policy that covers mileage allowance for electric cars? Do reimbursement rates differ if an employee uses their personal car vs a company car?
Here, we answer the most important questions surrounding mileage allowances for electric cars.
Can you claim mileage for electric cars?
The short answer is yes, employees can claim mileage for electric cars.
However, businesses should be aware of several factors surrounding mileage allowances for electric cars.
For example, in the U.K., the government has already reduced the allowance per mile to account for the cheaper running costs of electric cars.
In other countries, like the U.S., there is currently no separate policy that covers mileage reimbursement rates for electric cars (we go through this in more detail below), which means you might need to consider creating your own reimbursement policies.
What is the business mileage rate for electric cars?
The mileage rates for electric cars differ across each country. While some countries are further ahead in the development of comprehensive policies, others are still fine-tuning the details.
Below, we take a look at the mileage reimbursement rates for electric cars in the United Kingdom and the United States.
Mileage reimbursement rates for electric cars in the U.K.
Unlike many other countries, the U.K. has developed a policy that covers electric car reimbursement rates. This has in part been spurred by the government’s proposal to ban sales of all new petrol and diesel cars by 2030 (some hybrid cars will remain on sale until 2035). This also means that many businesses and employees are already investing in electric cars.
Use of personal cars: HMRC electric car mileage rates U.K.
When employees use their own electric cars for business use, the tax-free Mileage Allowance Payments (MAPs) are the same as those for petrol and diesel cars.
The HMRC (the U.K.’s tax authority) has currently set this rate at 45 pence per mile for the first 10,000 miles, and 25 pence per mile for any additional mileage. Plus, the employee can also claim 5 pence per mile for each passenger that travels with them on a business trip.
If an organization decides to set its own reimbursement rates lower than the MAP rates, employees can still claim the difference in tax relief from HMRC.
Use of electric company cars: Mileage allowance U.K.
If you have provided your employees with electric company cars, the advisory electricity rate (AER) is 5p per mile. The company can then reimburse the employee 5 pence for every business mile traveled.
Mileage reimbursement rates for electric cars in the U.S.
Each year, the IRS sets a mileage reimbursement rate for gas-powered vehicles, which stands at 62.5 cents per mile driven for business use for the final 6 months of 2022.
However, since the IRS has yet to set mileage reimbursement rates for electric vehicles, you’re likely curious as to how to manage your mileage reimbursement processes and how to set a mileage allowance for electric cars.
The answer is quite simple. Currently, with no official information from the U.S. government on separate rates, it’s safe to assume that businesses can use the same reimbursement rate for electric car mileage that they apply to gas-powered vehicles, or create their own policy covering mileage claims for electric cars.
Plus, there are other government incentives associated with electric car use, including:
- Cash reimbursements to HOV (high-occupancy vehicle) lane access
- Tax deductions if there is proof that the use of the electric vehicle has reduced the rate of carbon emissions
You can also choose to create your own reimbursement policy. If you do decide to create your own policy, you have a couple of options available:
- Offer employees a flat mileage allowance for electric cars
- Offer employees a “cents per mile rate” reimbursement policy, much like the policy that covers gas-powered vehicles