EVs to pay VED from 2025
Autumn Statement confirms road tax charge for electric cars, bikes, and vans
With the popularity of battery powered cars soaring, and the Treasury’s need to raise funds growing, it was only a matter of time before electric vehicles were no longer exempt from Vehicle Excise Duty. And today is the day: as part of the Autumn Statement, the Chancellor Jeremy Hunt has confirmed that electric vehicles will pay road tax from 2025. Fun while it lasted, eh?
Exact details are scarce for the moment, the news only announced in a tweet, though it did add the move has been taken ‘so all motorists begin to pay a fair share’. For the first year, electric cars will pay £10, as the current lowest emitters do, but from year two the rate will be the same as standard VED - £165. Surely EV owners won’t be tremendously pleased to pay as much as petrol and diesel drivers. Benefit-in-kind tax on electric company cars will go up in 2025, to three per cent, rising to four per cent in 2026-27 and then five per cent in 27-28. In addition, the tweet said that ‘support for charging infrastructure is continuing’. It would have to be assumed that some of this additional VED money will be going towards chargers, especially with that 2030 ban on new ICE-engined cars still apparently in place.
What this move will do for the popularity of EVs in the UK obviously can’t be predicted yet. Given a new electric car of any stripe is going to be £30k, and even the very cheapest Leaf is £6,000, it doesn’t feel like £150 more a year will sway the decision back to a combustion engine. But, quite frankly, who knows what’s going to happen. Suffice it to say, though, that the days of running an EV at next to no cost are coming to an end. We’ll talk about how much chargers and charging costs another time…
The changes to VED for BEVs won't change the landscape much. As matters stand, the amazingly low BIK charges on BEVs mean that the financial arguments for taking a company BEV instead of salary are still compelling.
Let's take an example of a £60k BEV which costs £10k per year in lease costs (just to illustrate).
For individuals, they give up 40% tax on a £10k/yr salary which is instead used by the employing company to take out the lease. The individual instead gets taxed at 2% of the £60k price - so, £1200, or c.£500 of tax at 40%. So a £10k annual cost is replaced by (a) the net salary given up (£6k) and the BIK charge (£500). That's £6.5k for the car, not £10k. Nice.*
For the employing company, they don't pay employers' NIC (13.8%) on £10k; it's based on that £1,200 charge. That's a hefty saving for them too.
That regime remains. It's the growth area for now.
( * there are some complicating factors before anyone gets cute, such as lower business mileage payments etc, but I hope I make the point. Adding VED isn't going to change the attraction of BEVs for employees with company EV car schemes)
So would certainly cost more to collect than it would bring in, hence why no nation anywhere in the world has ever considered the idea.
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