Electric Car Owners Must Pay Vehicle Excise Duty (VED) Road Tax From 2025 Onwards
Until now, electric vehicles (EVs) were exempt from the annual, second-year £165 VED standard rate payment and the ‘luxury supplement’ fee of £ 335 per year, which new cars with a list price over £40,000 command.
However, Chancellor Jeremy Hunt has used the budget to state that owners of emission-free cars and vans will now have to pay VED beginning in 2025.
David Lewis, Head of Electric Vehicles & Energy at Select Car Leasing, one of the UK’s most prominent vehicle leasing specialists, has described the move as ‘disappointing – but inevitable.
He adds: “It was always inevitable that EV owners would one day have to pay vehicle excise duty or a similar tax, so this doesn’t come as a great surprise.
“Road tax generates billions for the Treasury each year – and as more and more people move to EVs, that’s a sizeable fiscal gap to plug.
“In my view, EV road tax has been brought in at least two, three years ahead of time, as a reaction to a challenging financial outlook.
“And while that’s disappointing on the face of it – and an embarrassing announcement to make during COP 27 – I don’t ultimately see this as a ‘deal-breaker’ for those looking to get behind the wheel of an EV.
“The first year VED for zero-emission cars from 2025 will be set at the lowest rate – £10 – before moving to the standard rate of £165 a year.
“There’s also good news for company car owners, too. Jeremy Hunt has promised to keep Benefit in Kind (BIK) rates for EVs low, with a small 1% per year increase from April 2025 for three years.
“We know from our data that more and more people are leasing an EV as a company car, taking advantage of low tax rates and company Salary Sacrifice schemes, so that’s a welcome step.
“Since the summer alone, business lease enquiries at Select Car Leasing have increased by 24%. That’s a significant rise that reflects the growing appetite overall, and our Fleet Solutions team is working hard for businesses across the UK.
“And from a leasing perspective, I’d urge anyone looking to drive an EV to act now before the VED rules apply in three years.”
Mr Lewis says it’s also crucial cash-strapped UK motorists understand that they can still save money when driving an EV compared with a traditionally-fuelled car – even if they will ultimately have to pay road tax from 2025.
An online fuel cost calculator on the Select Car Leasing website suggests you can save more than £1,000 per year on fuel with an EV – a figure based on driving 10,000 miles in a year, charging your electric vehicle at home at the new 34p Energy Price Guarantee rate, and compared with a typical petrol or diesel car with a fuel efficiency of around 40 mpg.
He adds: “We should be incentivising EV ownership as much as we can, not giving people a reason to turn away from it.
“So motorists need reminding of all the benefits of driving an EV. Even with the rising cost of electricity, you can still save hundreds of pounds on your annual fuel bill.
“The Benefit in Kind (BIK) tax payments for EV company cars are also temptingly low – just 2% – compared with a traditionally fuelled car.
“It’s also important to point out that when you lease any car, your VED road tax is covered for the entire duration of your agreement, so it’s not a cost you need to consider.
“Above all else, let’s not make the introduction of road tax for EVs a reason not to go green.”
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