EV or PHV: The UK Taxi Driver's Choice

In the bustling world of UK taxis and Private Hire Vehicles (PHVs), drivers and operators are constantly seeking ways to optimise costs and enhance efficiency. A pivotal question increasingly arises: should you embrace the electric revolution and switch to an Electric Vehicle (EV) for your professional driving needs, or stick with the familiar petrol and diesel options? This article delves deep into the financial and operational considerations, offering a comprehensive guide to help you make an informed decision, especially concerning the significant savings and the intricacies of HMRC's Advisory Fuel Rates.

The shift towards electric vehicles is more than just an environmental statement; it’s a sound financial strategy for many in the taxi and PHV sector. Even with the fluctuations in electricity prices, the economic advantages of EVs are becoming increasingly clear. For instance, based on the average UK domestic electricity price of 34p per kWh (as of December 2022), a typical EV costs approximately 10p per mile for urban driving. This is a stark contrast to petrol or diesel vehicles, where fuel costs can be around double that amount. The savings can be even more substantial if you have access to off-street parking and can utilise cheaper overnight, off-peak electricity tariffs for charging.

Beyond the immediate fuel savings, operating an EV as a taxi or PHV offers further financial benefits. Owners can anticipate significantly lower servicing and maintenance costs. EVs have fewer moving parts than internal combustion engine (ICE) vehicles, leading to less wear and tear and subsequently reduced maintenance requirements. Furthermore, a substantial financial incentive for EV adoption has been the exemption from road tax, a benefit that will continue until 2025, providing a clear advantage over traditional vehicles.

Navigating HMRC: Advisory Fuel Rates for Company Cars

While the direct cost savings for self-employed taxi drivers operating an EV are compelling, it's also crucial for those operating as companies or employing drivers to understand the role of HMRC's Advisory Fuel Rates (AFRs). These rates are specifically designed for employees using a company car and are vital for managing fuel expenses and avoiding tax implications.

AFRs apply in two primary scenarios:

• Reimbursing employees for business travel in their company cars: If the mileage rate you pay to your employees for business travel does not exceed the advisory fuel rates for the specific engine size and fuel type of the company car, there will be no taxable profit and no Class 1A National Insurance contributions to pay. However, if your company cars are more fuel-efficient than the average, or if the actual cost of business travel is higher than the guideline rates, you have the flexibility to use your own tailored rates that better reflect your specific situation. Should you pay rates higher than the advisory rates without being able to demonstrate that the fuel cost per mile is genuinely higher, and provided these payments are exclusively for business travel, there will be no fuel benefit charge. Instead, any excess payment will be treated as taxable profit and as earnings for Class 1 National Insurance purposes.
• Employees needing to repay the cost of fuel used for private travel: To avoid a fuel benefit charge, it is imperative that all private travel mileage is accurately recorded and that employees repay the cost of fuel used for private journeys at the correct rate, or a higher one. It is not always necessary to strictly adhere to the advisory rates if you can clearly demonstrate that your employees fully cover the cost of private fuel by repaying at a lower mileage rate.

It's important to note that these rates must not be used in any other circumstances beyond these defined scenarios. Hybrid cars, for the purpose of advisory fuel rates, are treated as either petrol or diesel cars, depending on their primary fuel type.

How Advisory Fuel Rates Are Calculated

HMRC undertakes a quarterly review of these rates, typically on 1 March, 1 June, 1 September, and 1 December. The methodology for calculation is thorough and considers various factors:

• The mean miles per gallon (MPG) data is sourced from manufacturers' information, taking into account annual sales to businesses (Fleet Audits average from 2021 to 2023).
• For Liquefied Petroleum Gas (LPG) vehicles, the MPG used is 20% lower than for petrol, accounting for its lower volumetric energy density.
• The 'rates per mile' are initially calculated and shown rounded to one decimal place, with the final advisory fuel rates rounded to the nearest whole penny. Specific rounding rules apply for rates ending in 0.5.
• The latest petrol and diesel prices are obtained from the Department for Energy Security and Net Zero (DESNZ), while LPG (UK average) prices are from the Automobile Association website.
• The advisory electric rate for fully electric cars is calculated using electrical price data from DESNZ and the Office for National Statistics (ONS), car electrical consumption rates from the Department for Transport (DfT), and annual car sales volumes to businesses (Fleet Audits average for the last three years).
• The DESNZ annually published 'pence per kilowatt hour' cost is uprated by the quarterly ONS Consumer Prices Index for electricity to account for quarterly price variations.
• The value of the annual equivalent rate is then determined by combining the cost of electricity per mile for each model (from DfT) with electricity price data (from DESNZ and ONS). A weighted average value of the electrical costs per mile for a fully electric car is then calculated based on company car sales data over the last three years.

Advisory Fuel Rates: Historical and Future

Below are the advisory fuel rates, including current, historical, and future projected rates, providing a clear overview for planning and reimbursement purposes. You can generally use the previous rates for up to one month from the date any new rates apply.

Rates from 1 June 2025

Rates from 1 March 2025 to 31 May 2025

Rates from 1 December 2024 to 28 February 2025

Rates from 1 September 2024 to 30 November 2024

Rates from 1 June 2024 to 31 August 2024

Rates from 1 March 2024 to 31 May 2024

Rates from 1 December 2023 to 29 February 2024

Rates from 1 September 2023 to 30 November 2023

Rates from 1 June 2023 to 31 August 2023

Frequently Asked Questions

Is an EV a good choice for a taxi or PHV in the UK?

Yes, absolutely. EVs offer significant cost savings on fuel, especially with off-peak home charging, and benefit from lower maintenance costs and no road tax until 2025, making them a financially attractive option for professional drivers.

How much cheaper are EVs to fuel compared to petrol/diesel?

Based on average UK domestic electricity prices, an EV can cost about 10p per mile for urban driving. This is approximately half the cost of fuelling a comparable petrol or diesel vehicle, leading to substantial savings over time.

What are the main financial benefits of using an EV as a taxi?

The primary financial benefits include significantly reduced fuel costs, lower servicing and maintenance expenses due to fewer moving parts, and an exemption from road tax until at least 2025.

What are HMRC Advisory Fuel Rates (AFRs) and who do they apply to?

AFRs are guidelines set by HMRC for company cars. They apply to businesses that reimburse employees for business travel in their company cars or when employees need to repay the cost of fuel used for private travel in a company car. They are crucial for ensuring tax-efficient management of fuel expenses.

How are Advisory Fuel Rates determined?

AFRs are calculated based on various factors, including the mean miles per gallon (MPG) for different engine sizes and fuel types, current fuel prices from official sources (DESNZ, AA), and for EVs, electrical consumption rates from the DfT combined with electricity price data from DESNZ and ONS. They are reviewed quarterly.

Are hybrid vehicles treated as EVs for AFR purposes?

No, for the purpose of Advisory Fuel Rates, hybrid cars are treated as either petrol or diesel cars, depending on their primary fuel type, rather than fully electric vehicles.

Can I use older Advisory Fuel Rates?

Yes, HMRC allows businesses to use the previous advisory fuel rates for up to one month from the date new rates are introduced. This provides a grace period for adjusting accounting systems.

The decision to switch to an EV for your taxi or PHV business is increasingly compelling. The substantial savings on fuel and maintenance, coupled with the current road tax exemption, present a strong financial case. While understanding HMRC's Advisory Fuel Rates is key for those operating company cars, the overarching benefits of electric vehicles are clear for the UK's professional driving sector. Embracing an EV could be the strategic move that not only cuts down your operating costs but also positions your business for a more sustainable and profitable future.

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