Advisory Electric Rate Q2 2026 update: what changes for UK electric fleets
HMRC updates the Advisory Electric Rate every quarter. Here's how to apply the Q2 2026 change without breaking your reimbursement flow.
What the AER is
HMRC's Advisory Electric Rate (AER) is the per-mile electricity-cost figure used when an employee charges a **company-owned electric car** privately and the employer reimburses the electricity.[^hmrc-aer-103] It plays the same role as the Advisory Fuel Rate (AFR) does for petrol and diesel: it's the rate HMRC accepts as covering the cost without any income-tax or NIC consequences.
Introduced in September 2018 at 4p/mile, the AER has crept up steadily as electricity prices rose. By Q1 2026 it sat at 9p/mile.
For Q2 2026 (1 June 2026 to 31 August 2026), HMRC is publishing an updated rate that reflects the average commercial electricity price during the previous quarter. Companies need to apply the new rate from June 1 — earlier or later application creates a defensible-but-untidy filing.
How HMRC computes the rate
The AER methodology is published in HMRC's EIM23900 guidance:
1. Take the average UK domestic electricity price (Ofgem published). 2. Divide by the average miles per kWh of an EV (~3.5 mi/kWh on the HMRC reference fleet). 3. Round to the nearest penny.
The Q2 2026 update is driven by the Q1 2026 Ofgem price cap and the methodology stays unchanged.
What the AER does not cover
Three common confusions:
- **Personal-vehicle EV.** AER is for company cars only. For an employee's own EV used on business, the regime is AMAP (45p/25p) — not AER. - **Workplace charging.** When the employer pays the electricity bill of a workplace charger, no AER calculation is needed; it's a non-taxable benefit (per ITEPA 2003 s. 269A). - **Public charging.** When the employee charges at a public rapid charger and pays the bill themselves, the employer can reimburse the actual cost via expense claim instead of the AER, especially when public rates exceed AER.
Worked example
Fleet manager, company Tesla Model Y, 1,200 business miles in June 2026, charges at home.
- AER Q2 2026 (assume 9p): 1,200 × 9p = £108. - Tax treatment: tax-free up to the AER, no PAYE, no NIC. - Documentation: trip log, charging receipts (not strictly required, but good practice for VAT recovery).
If the employer paid 12p/mile instead (above the AER), the 3p/mile excess (= £36) is taxable as a benefit in kind unless the employee can demonstrate actual electricity cost ≥ 12p/mile.
VAT recovery on EV charging
VAT recovery on EV electricity is complicated and changed in February 2024. HMRC clarified that VAT on workplace charging is recoverable as input tax in the normal way; VAT on home charging is recoverable only when the employer can demonstrate the electricity is for business use, which in practice requires per-charge records rather than a flat reimbursement.
For most fleets, the practical approach is to reclaim VAT only on the workplace charging element and to treat home-charging AER reimbursement as VAT-neutral.
Implementation checklist for Q2 2026
1. **Update the rate in payroll**: change AER from 9p to the new Q2 figure effective June 1. 2. **Notify employees** at least 7 days before the change — email or staff portal post. 3. **Update internal policy** PDF with the Q2 figure and the date. 4. **Audit Q1 claims** before final close: any claim dated 1 March or later should already be at the Q1 rate. 5. **Cross-check the AFR** for plug-in hybrids: HMRC publishes a separate column. PHEVs use the AFR for the engine size, not the AER.
Common errors
- Applying the new rate retroactively to claims dated in May. Wrong; the trip date determines the rate. - Mixing AER with AMAP. AER is for company cars; AMAP is for personal vehicles. - Forgetting to notify the payroll provider — reimbursement runs at the old rate for a month, generating manual reversal entries.
What to do this week
1. Confirm the published Q2 2026 figure on gov.uk (HMRC publishes 7–10 days before the quarter starts). 2. Schedule the policy update for May 25. 3. Notify employees by email on May 26. 4. Reconfigure payroll on May 30. 5. Run the first Q2 batch on June 5 to catch any classification errors early.