Unlocking the Future of EV Fleet Reimbursement: Why the Advisory Electricity Rate (AER) Isn't Enough

As electric vehicle (EV) adoption accelerates in the UK, businesses are increasingly tasked with managing the reimbursement of employees who charge their vehicles for business purposes. The government’s Advisory Electricity Rate (AER) is often used as a baseline for EV charging reimbursement. However, while the AER provides a convenient standard, it has significant limitations when it comes to fairly compensating employees who charge their EVs both at home and on public networks.

In this blog, we will explore the shortcomings of the AER and how businesses can create more accurate, fair, and transparent reimbursement policies with Paua Reimburse.

What Is the Advisory Electricity Rate (AER)?

The Advisory Electricity Rate (AER) is set by the UK government and is currently 7p per mile (Oct 2024) for electric vehicles. It is designed to simplify the reimbursement process for business miles driven in EVs, offering a standard rate for employers to repay employees for charging costs.

For many businesses, the AER is a convenient solution for reimbursing employees without having to account for individual electricity tariffs or complex data tracking. However, for EV drivers who charge at both home and public networks, this one-size-fits-all approach often falls short.

The Limitations of the AER for EV Reimbursement

While the AER is useful as a starting point, it is far from a comprehensive solution for reimbursing EV drivers. Here’s why it’s often not enough:

1. Public Charging Costs Are Much Higher

One of the primary issues with the AER is that it doesn’t account for the stark difference between the cost of home charging and public charging. Public charging networks, particularly fast and rapid chargers, often have much higher rates than charging at home. The average cost of home charging is typically lower due to off-peak tariffs and more stable energy rates, whereas public chargers can be as much as three or four times more expensive per kilowatt-hour (kWh).

This discrepancy means that employees who primarily charge on public networks are significantly undercompensated if they are reimbursed solely at the AER rate.

2. Variable Electricity Tariffs at Home

Electricity costs can vary widely depending on an employee’s energy supplier, region, and even the time of day they charge. Many employees use time-of-use tariffs, where they pay significantly less for electricity during off-peak hours. Others may be on standard flat-rate tariffs or renewable energy plans that have higher premiums. The AER does not take these variations into account, meaning employees with higher energy tariffs may not be fairly compensated for their charging costs.

3. Fluctuations in Energy Prices

Energy prices can fluctuate over time, and with rising electricity costs in the UK, the static AER of 10p per mile may not reflect the real costs incurred by employees. Without a dynamic method to adjust reimbursement in line with actual charging costs, the AER can leave drivers out of pocket.

4. Complexity of Multiple Charging Locations

Many employees use a combination of home charging, public networks, and potentially workplace chargers. The AER doesn’t offer flexibility for employees who need to be reimbursed at different rates depending on where they charge. As a result, businesses may either overcompensate employees who mainly charge at home or undercompensate those relying on public charging.

Why Fair Reimbursement Matters

Ensuring that employees are fairly reimbursed for their EV charging costs is essential for fostering trust and transparency within the organisation. Inaccurate or insufficient reimbursement can lead to dissatisfaction, especially among employees who rely heavily on public charging networks. Moreover, businesses that continue to rely solely on the AER may face compliance issues if they are seen as underpaying employees for their legitimate business expenses.

As more companies adopt EVs and aim to meet sustainability goals, the need for a more nuanced and accurate approach to EV reimbursement is becoming increasingly urgent.

Moving Beyond the AER with Paua Reimburse

To address these challenges, businesses need a more flexible and comprehensive solution for managing EV fleet reimbursement. Paua Reimburse is designed to provide accurate, fair, and HMRC-compliant reimbursement for employees, regardless of where or how they charge their vehicles.

Here’s how Paua Reimburse can help:

1. Accurate Cost Tracking Across Multiple Charging Locations

Paua Reimburse can track charging data from any location, whether it’s at home, in public, or at the workplace. This ensures that employees are reimbursed based on their actual charging costs, not just an arbitrary standard like the AER. By capturing data from every charge, Paua Reimburse creates a holistic view of energy usage and charging events, making fair compensation straightforward.

2. Dynamic Reimbursement Options

Unlike the AER, Paua Reimburse allows businesses to offer more dynamic reimbursement methods that adjust based on actual charging costs. Whether employees charge at home or on public networks, they can be reimbursed accurately for the real cost of the energy they use, rather than relying on a flat rate.

3. Flexibility to Account for Public Charging Costs

Paua Reimburse offers businesses the flexibility to reimburse employees differently for home and public charging. This ensures that employees who rely more heavily on public charging infrastructure, where rates are often higher, are compensated fairly without overpaying employees who primarily charge at home.

4. Fully HMRC-Compliant

Paua Reimburse is designed to be fully compliant with HMRC guidelines, giving businesses peace of mind that they are managing reimbursements correctly and avoiding any potential tax liabilities. Paua customers have received HMRC clearance for the Paua Reimburse approach.

The Future of EV Fleet Reimbursement

As the number of EVs on UK roads continues to grow, businesses need to adopt more sophisticated tools and strategies for managing reimbursement. The AER, while useful as a baseline, is simply not enough to meet the needs of today’s EV drivers, especially those who charge at multiple locations or use public networks regularly.

By embracing a solution like Paua Reimburse, businesses can ensure that their employees are fairly compensated for the true cost of their EV charging, fostering a culture of transparency and supporting the broader shift towards sustainability.

To learn more about how Paua Reimburse can transform your business’s EV reimbursement strategy, contact us today.

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