17 Nov 22

UK to start taxing BEVs from 2025

UK to start taxing BEVs from 2025

From April 2025, battery-electric vehicles (BEVs) will no longer be exempt from vehicle excise duty (VED), a.k.a. road tax, in the UK. The measure was announced by Chancellor Jeremy Hunt (pictured) in his Autumn Statement. He said it would “make our motoring tax system fairer”. Meanwhile, "company car tax rates will remain lower for EVs, and (…) we'll limit rate increases to one percentage point a year for three years from 2025."

Hunt added that support for the rollout or charging infrastructure would continue. Last year, the UK Treasury warned that the rise in EVs (and more to the point, the corresponding decline in petrol and diesel cars) was undermining revenue from VED – there was talk of a “funding black hole” of about £35 (€ billion) – and that new sources of revenue would need to be found. There are currently already more than 500,000 BEVs on British roads.

The amount of VED per vehicle depends on its energy efficiency, and can be around £1,000 per year. EVs will pay the lowest rates.

  • Nicholas Lyes, Head of Policy at the RAC, called the measure “probably fair”, but said a first-year zero-VED rate should have been retained as an incentive. However, “we don't expect this tax change to have much of an effect on dampening the demand for EVs, given the many other cost benefits of running one”.
  • ChargePoint, by way of its Senior Director for Public Policy Tanya Sinclair, said they supported the government’s decision, “so long as (it) recognises that EVs are the cleanest vehicles on the road, and incentivises drivers to choose to drive them”. “We’re pleased to see that EVs will pay the lowest VED rates, as it is vital to reward those who purchase zero emission vehicles, (but) EVs use the road like any other vehicle and with EV numbers rising rapidly, (and so) the era of ‘freebies for EVs’ in motor taxation has to come to an end”.
  • Caroline Sandall-Mansergh, Consultancy and Channels Development Manager, Alphabet GB, said: “Following Jeremy Hunt’s Autumn Budget announcement today, while it is disappointing that EVs will no longer be exempt from VED after April 2025, we are pleased to see that the increase in company car tax for EVs will be incremental at 1% per year. From the BIK increase announced today, the average electric vehicle driver on a £35,000 list price at the 20% tax rate will only be paying an extra £6 a month from April 2025. However, such a sharp increase in VED for EVs is likely to limit uptake, particularly in light of current energy prices. We would have preferred to see the introduction of a new lower rate in order to continue to differentiate zero emissions vehicles from other vehicles.

Other industry voices are strongly opposed to the change.

  • David Savage, Vice President for UK and Ireland at Geotab, said: “This is hugely disappointing. We’re just 8-years out from the cessation of Internal Combustion Engine (ICE) powered cars in the UK and very much at the crux of the transition to electric”. “EVs are currently exposed to a number of challenging external factors, from soaring electricity tariffs, higher VAT for public charging versus home, and increased list prices of the vehicles themselves. Despite this, the government has responded by terminating the plug-in car grant incentive scheme for EVs—and now is introducing Vehicle Excise Duty (VED) on electric cars for the first time. In the week of COP27, now is not the time to undermine the importance of the crisis we face, nor walk back the advances we’ve made as a country”.
  • Added Karl Howkins, Managing Director of SOGO mobility: “We already have anecdotal evidence that the rise in electricity prices is slowing demand for EVs, and the Chancellor’s decision to introduce vehicle road tax for EVs in 2025 and increases to company car tax, can only serve to further dampen demand”.
  • Patrick Reich, co-founder and CEO of EV charging app Bonnet, said: “At this critical time for our environment it is infuriating that the UK government would throw up a new barrier for people looking to change from a polluting car to electric power”.

Image: Shutterstock

Authored by: Frank Jacobs