Reimbursement Challenges for Electric Vehicles in Corporate Fleets

As the world increasingly shifts towards sustainability, the adoption of electric vehicles (EVs) within corporate fleets is becoming a key focus for companies looking to reduce their carbon footprint. However, the transition from internal combustion engine (ICE) vehicles to electric ones introduces a host of challenges, particularly around the reimbursement policies for business-related travel in EVs. This article explores the reimbursement landscape for EVs, highlighting key issues and proposing potential solutions.

The Current State of EV Reimbursement

Reimbursement for business mileage in company vehicles has long been a standard practice, but the rise of EVs complicates the situation. Traditionally, ICE vehicles are reimbursed based on HMRC's Advisory Fuel Rates (AFRs), which offer a reasonably accurate reflection of fuel costs based on engine size and fuel type. However, the introduction of the Advisory Electric Rate (AER) for EVs has revealed significant shortcomings in how business mileage is reimbursed.

The AER, currently set at 8p per mile, assumes that all EV charging occurs at home at a tariff of approximately 28p per kWh and that the vehicle achieves an efficiency of 3.55 miles per kWh. This rate does not account for the wide variability in charging costs or the efficiency differences between various EV models. For example, the cost per mile for an electric vehicle like the Kia Niro can vary from as low as 2p per mile when charged at home on a smart tariff to as high as 14.9p per mile when relying on public fast chargers.

This discrepancy makes the AER unfit for purpose in many scenarios, leading to a situation where employees might be under-reimbursed for their actual expenses or, conversely, overcompensated, depending on their specific charging circumstances. Unlike ICE vehicles, where fuel costs are relatively stable, EV charging costs are highly variable based on where and when the vehicle is charged, introducing a new layer of complexity to reimbursement.

Challenges and Considerations

One of the major challenges in EV reimbursement is the lack of flexibility in the current system. The AER does not differentiate between employees who charge their vehicles at home, those who rely on public chargers, or those who use a mix of both. This one-size-fits-all approach fails to reflect the true cost incurred by drivers, leading to dissatisfaction and potential financial inequities within the company.

Moreover, the reimbursement rate does not consider the significant price fluctuations in electricity, which can be influenced by various factors, including geopolitical events. As a result, the current reimbursement structure can lead to unpredictable expenses for both the employee and the employer.

Proposed Solutions

To address these challenges, several industry bodies, including the Association of Fleet Professionals (AFP) , are advocating for a more nuanced reimbursement regime. One proposal is to introduce a tiered reimbursement system that differentiates between drivers with access to home charging and those who rely on public infrastructure. Furthermore, within the home charging group, it could be beneficial to distinguish between those who exclusively charge at home and those who use a combination of home and public charging options.

This approach would allow for a more accurate reflection of the costs associated with EV usage, ensuring that employees are fairly reimbursed and that companies can manage their expenses more effectively. Additionally, companies could consider implementing a Whole Life Cost (WLC) model for their vehicle fleets. This model takes into account all in-life costs, including purchase price, residual value, maintenance, fuel (or electricity), and associated taxes. By using WLC as the basis for vehicle selection and reimbursement, companies can achieve a more equitable and cost-effective policy that aligns with their sustainability goals.

The Future of EV Reimbursement

As the adoption of EVs continues to grow, it is crucial for companies to stay ahead of these challenges by developing and implementing flexible, fair, and forward-thinking reimbursement policies. The introduction of a tiered or more sophisticated reimbursement system, combined with the adoption of WLC models, will not only ensure compliance with evolving regulations but also contribute to the overall satisfaction and retention of employees.

In conclusion, while the transition to electric vehicles is essential for meeting environmental targets, it is equally important to address the financial implications for both employees and employers. By refining EV reimbursement policies, companies can support their workforce during this transition and create a more sustainable and financially viable future.