New Advisory Fuel Rates from HMRC will see suggested reimbursements to company drivers of combustion-engined cars rise, but for those driving electric cars a cut.

The rates, revised every quarter with the new amounts coming into effect on 1st June, are the amount that the tax office indicates employers should be reimbursing their employees for business travel in company cars. The rates are not mandatory but higher amounts paid out could be taxed unless the employee can justify their costs.

The petrol rates per mile will increase from 13 to 14p for cars of 1400cc or less, from 15 to 16p for cars between 1401 and 2000cc, and from 24 to 26p for cars over 2000cc. Diesel rates go up from 12 to 13p for cars under 2600cc, from 14 to 15p for cars of 1601 to 2000cc and from 19 to 20p for cars over 2000cc.

Electric car drivers, however, will see their rate cut, from 9p to 8p per mile – the rate, first launched in 2018 at 4p per mile, peaked between September and December 2023 at 10p per mile. It also does not apply to hybrids, for which the relevant petrol and diesel rates apply.

HMRC calculates its mean miles-per-gallon rate from manufacturer information including sales to business users. Electric rates are calculated using electrical price data from the Department for Energy and Net Zero (DESNZ), the Office for National Statistics (ONS), car electrical consumption rates provided by the Department of Transport and annual car sales volumes to businesses.

The Quarterly ONS Consumer Prices Index for electricity is used to update the annual pence per kilowatt hour cost produced by the DESNZ, and combined with the car sales data and electricity cost per mile for each model to produce a weighted average cost per mile for using a fully electric vehicle.

The latest rate cut will without doubt produce further criticism of the Advisory Electricity Rate (AER) programme, which detractors argue does not reflect the costs incurred by EV users who cannot charge at home and have to rely on public charging networks. Critics of the programme have included Volkswagen Financial Services Fleet which dubbed it as not fit for purpose.