Electric vehicles (EVs) once enjoyed significant tax advantages, most notably zero Vehicle Excise Duty (VED). However, as EVs become mainstream, the government is adjusting tax policies to ensure fairness and maintain public revenue. Starting in April 2025, all new EVs will be subject to standard road tax rates, and changes affect even older models. This guide breaks down every tax you need to know about when owning an electric car, from VED to VAT and beyond.
The Changing Landscape of EV Taxation
The shift in EV tax policy isn’t arbitrary. With the UK aiming to phase out petrol and diesel car sales by 2030, the government is addressing a potential revenue shortfall. Heavily taxed combustion engines will disappear, so adjustments are needed to prevent public finances from suffering. While EVs continue to gain popularity, tax changes reflect a broader fiscal strategy.
Key Taxes Affecting Electric Cars
Electric cars are now subject to the same taxes as conventional vehicles, though the rates differ. The most significant taxes include:
- Vehicle Excise Duty (VED): Annual road tax, payable upon registration and yearly thereafter.
- Expensive Car Supplement: Applies to EVs costing over £50,000.
- Benefit-in-Kind (BiK): Relevant for company car drivers.
- Value Added Tax (VAT): Applied at the point of sale.
Understanding Vehicle Excise Duty (VED)
VED, commonly known as road tax, is an annual fee for keeping a vehicle on the road. Previously, EVs were exempt, but that changed in April 2025. New EVs now pay a £10 first-year charge and the standard £195 annual rate thereafter. Vehicles exceeding £50,000 incur an additional £425 Expensive Car Supplement.
Owners of EVs registered between April 2017 and March 2025 will also face the standard £195 annual rate. Older models (registered before April 2017) pay a reduced £20 per year, but this exemption is temporary.
The Expensive Car Supplement Explained
The £425 annual surcharge applies to EVs costing over £50,000 for five years from their second birthday. This means that a new high-end EV will cost private buyers £620 annually from year two onward. Used-car buyers should verify a vehicle’s original price to determine if the supplement applies.
Benefit-in-Kind (BiK) Tax for Company Cars
Company car drivers face Benefit-in-Kind taxation, based on the car’s cost, taxpayer status (20% or 40% income tax), and a BiK percentage. The EV BiK rate has risen from 2% to 3%, increasing tax liability slightly. However, EVs remain far more cost-effective than petrol cars due to lower overall rates.
Value Added Tax (VAT) on Electric Cars
Electric cars are subject to the standard 20% VAT at the point of sale, just like any other vehicle. However, there’s a difference when it comes to charging: home chargers use domestic energy VAT (5%), while public charging is taxed at 20%. Industry calls for aligning public charging VAT with home rates (5%) and halving EV purchase VAT could further incentivize adoption.
The Potential eVED Pay-Per-Mile Tax
The government is considering a pay-per-mile tax for EVs, starting no sooner than 2028. This would charge 3 pence per mile driven, with plug-in hybrids at 1.5 pence per mile. The goal is to offset lost fuel duty revenue as petrol cars decline.
Conclusion
Electric car taxation is evolving. While incentives have diminished, EVs still offer significant financial benefits, especially for company car drivers. Understanding these changes is crucial for both new and existing EV owners to accurately budget for ownership costs. The introduction of VED, the Expensive Car Supplement, and potential future mileage-based taxes will reshape the financial landscape of electric vehicle ownership in the UK.
