The UK government is set to introduce a major overhaul in vehicle taxation, marking the end of tax exemptions for electric vehicle (EV) owners. From April 2025, all EVs will be subject to Vehicle Excise Duty (VED), bringing them in line with petrol and diesel vehicles. The changes will introduce a tax burden of up to £2,000 over several years, particularly for owners of high-value electric cars.

Why Is The Government Changing EV Taxes?

Since 2017, electric cars have been exempt from VED to encourage adoption and support the transition to greener transport. However, as EV ownership has grown, the government argues that taxation should be applied more fairly across all vehicle types. The new policy aims to ensure that all drivers contribute to road maintenance and infrastructure costs, regardless of the vehicle’s emissions.

According to the UK Treasury, the loss of revenue from tax-exempt EVs has contributed to a widening gap in public finances. The Office for Budget Responsibility (OBR) estimates that the government could lose £35 billion in fuel duty and VED revenues by 2040 if EVs remain exempt

How Much Will EV Owners Have to Pay?

The tax changes will be introduced in stages and will affect electric vehicles depending on when they were registered. The key changes are:

1. New EVs (Registered from April 1, 2025, onwards):

• First-year VED: £10
• Standard VED (from second year onwards): £195 per year
• Additional “Expensive Car Supplement” for EVs priced above £40,000: £355 per year for five years

2. Existing EVs (Registered between April 1, 2017, and March 31, 2025):

• Will move to the standard annual rate of £195 from April 2025.

3. Older EVs (Registered between March 1, 2001, and March 31, 2017)

• Previously tax-exempt, these cars will now be charged £20 per year.

For many EV owners, these changes could mean an additional cost of around £2,000 over six years, particularly for those with vehicles priced above £40,000.

Breakdown of Costs for Premium EV Owners

A new electric vehicle purchased for over £40,000 in 2025 will be subject to:

• First-year tax: £10
• Second to sixth-year VED: £195 × 5 = £975
• Luxury car supplement: £355 × 5 = £1,775

Total additional tax over six years: £2,760

For full details on the new tax rates, visit the official government website: Vehicle Tax for Electric and Low Emissions Vehicles.

What Does This Mean for EV Adoption?

The UK government has set an ambitious goal of banning the sale of new petrol and diesel cars by 2035, encouraging more drivers to switch to electric vehicles. However, the new tax policy has raised concerns among industry experts and environmental advocates.

Mike Hawes, Chief Executive of the Society of Motor Manufacturers and Traders (SMMT), said:

“This move risks slowing down EV adoption at a time when we need to accelerate towards net zero. Taxation should encourage greener choices, not create barriers.”

Car manufacturers and EV advocates argue that making electric cars more expensive to own could reduce consumer confidence. The additional costs, combined with high upfront prices and limited charging infrastructure, may push potential buyers toward keeping petrol or hybrid cars for longer.

Impact on Second-Hand EV Market

One of the biggest concerns is the effect on the used EV market. Currently, many buyers opt for second-hand electric cars to avoid high upfront costs. The introduction of an annual £195 tax for EVs registered after 2017 could make these vehicles less attractive, reducing their resale value.

AutoTrader’s Head of Insights, Richard Walker, warned that:

“Used EVs are already struggling to compete with petrol and diesel cars. Adding extra taxes will make it harder for consumers to justify the switch.”

How to Save on EV Costs

Despite the new tax, electric cars still offer cost benefits over petrol and diesel models, particularly in terms of running costs and government incentives:

• Lower Fuel Costs: Charging an EV is significantly cheaper than refueling a petrol or diesel car, especially when using home charging overnight.
• Cheaper Maintenance: EVs have fewer moving parts, leading to lower servicing costs.
• Congestion Charge Exemptions: Many cities, including London, offer reduced or zero congestion charges for EVs.
• Company Car Benefits: EVs continue to enjoy lower Benefit-in-Kind (BiK) tax rates for company car drivers.

Conclusion:

The UK government’s decision to introduce taxes on EVs marks a significant shift in policy. While the move is aimed at ensuring fairness across all vehicle types, it could slow down the adoption of electric cars at a critical moment in the transition to net-zero emissions.

With high vehicle prices, concerns over charging infrastructure, and now additional tax costs, the government may need to consider new incentives to balance these changes and maintain momentum toward a greener future.