► Electric car tax: how it works
► VED, benefit-in-kind and more
► Are there still EV tax advantages?
The government announced that electric vehicles (EVs) won’t be exempt from car tax from April 2025, marking a small but significant step away from the incentives we’ve seen before in the push to incentivise the adoption of EVs.
Previously, the benefits tagged onto an EV helped swallow the price premium a consumer would face. Early adopters received a grant against the cost of an EV before that was discontinued in 2022. Then there’s the congestion charge reimbursement and free road tax, both of which will now end in 2025.
The government’s autumn budget signalled the end of free car tax for EVs. This means newly registered EVs will be liable to pay Vehicle Excise Duty (VED), a formal term for car tax.
This all comes on the back of Labour reinstating the 2030 new petrol and diesel ban, giving the UK five years less to transition to electric.
It’s all systems go on EV road duty, so we’ve broken down what you need to know on this page. Read on for a full break down of how EVs are taxed and what the futures holds.
Do EVs pay any car tax right now?
You do not have to pay any VED on an electric car, but that benefit still comes with a few caveats. Although you won’t have to pay for the privilege, you must still apply to have your EV taxed every year to stay within the law. You’ll still have to ‘tax’ your car, but as an EV, it’ll fall within band A, which is currently priced at £0.
2025 onwards?
From 2025 onwards, EV owners must pay VED on their car. It’ll only be the standard rate, which as of November 2024 is £190, but that number could go up again in the future. If you register your electric or low-emission car on or after 1 April 2025 – the day the new rule comes into effect – then you’ll be liable to pay the lowest first year rate from the CO2 ladder, which has been set at £10 per year for zero emission vehicles. The standard rate will then be applied each year after.
An additional cost will also be placed on cars with a list price that exceeds £40k. Known as the expensive car supplement, it’s added to the standard rate of VED from the second licence year for a total of five years, or six years from when the vehicle was first registered. The rate is currently £410 but again, it could be subject to change.
What about electric vans?
Although not currently liable, electric van owners will also be required to pay VED on their vehicles from 2025 onwards. Most E-Vans will be moved into the light goods and vehicles bracket that’s currently applied to petrol and diesel models of the same sort. As of November 2024, that’s £335 a year. Expect it to rise in line with the Retail Price Index (RPI).
Benefit-in-kind: electric car company car tax
A major change was introduced on 6 April 2020 for the 2020-21 tax year, meaning that a full electric company car attracted 0% benefit-in-kind, rising to 2% for 2024-25, and increasing incrementally to 9% for 2029-30. This is a major perk for company car drivers – owning a company-supplied EV is a bit of a no-brainer and a major saving for any fleet drivers.
Supplier Octopus Electric Vehicles estimated that the 2020 tax changes could save a typical business driver around £7000 over three years.
While this benefit was aimed at changing end-user behaviour, there are still numerous upsides for employers providing EVs for their staff: companies going electric will also benefit from National Insurance savings and capital allowances, making it win-win for businesses choosing electric vehicles.
Ian Johnston, CEO of high-speed charging network Osprey Charging, said: ‘The elimination of benefit-in-kind tax for electric vehicles marks a significant milestone in the journey towards mass adoption. It now makes complete financial sense for millions of drivers across the UK to go electric.
‘Not only will this directly increase the numbers of electric vehicles on the road today, it will also give a huge boost to the all-important second hand electric vehicle market, building momentum for wider electric vehicle adoption in two to three years’ time.’
Company car tax calculator on our sister website Parkers.co.uk
Fuel tax and electric cars
Because electricity is universal, and the taxman can’t differentiate between the energy used to power your kettle from your car, there is no special duty paid on energy used to recharge your EV’s battery. This is a positive: there is no fuel duty escalator to make your electricity bills balloon every time you fill up. Remember that nearly 60p of every litre of petrol goes straight to the taxman.
So as you can see from the above, choosing an electric car is a great way to save tax for British motorists – but the fiscal advantage is slowly being eroded as EVs become more mainstream. This was perhaps inevitable; we never assumed that HMRC would watch everyone plug in and wave goodbye to its motorists’ tax take.
If you’re considering taking the plunge and choosing an electric car, our advice is to look past the initially steeper purchase price and do the maths to work out how much you’ll save each year – in VED car tax, benefit-in-kind (if appropriate), fuel costs and any congestion charges in your area. Only once you’ve done the calculation will you know whether you’d be better off by plugging in or waiting a bit longer.