Electric car drivers will have to pay Vehicle Excise Duty – colloquially known as ‘road tax’ – from 2025 under new rules announced by the government. The measure was one of several revealed by the Chancellor of the Exchequer, Jeremy Hunt, during the Autumn Statement last week.
Alongside a rise in the minimum wage for over-23s and plans to increase state pensions in line with inflation, Hunt also revealed tax increases to cover the costs, including freezes on the tax thresholds for inheritance tax, National Insurance and income tax. And Hunt confirmed electric cars would no longer be exempt from Vehicle Excise Duty (VED) from 2025.
For years, the government has offered electric vehicle drivers lower taxation in a bid to incentivise uptake. Now, though, Hunt has pledged to remove the exemption from VED because predictions suggest “half of all new vehicles will be electric by 2025” and the change would “make our motoring tax system fairer”.
Under current rules, a new car’s first year of VED is charged as part of the purchase price, with drivers of petrol and diesel cars paying £165 a year to drive their vehicles. Drivers of hybrid cars receive a £10 discount, but vehicles with a list price of over £40,000 attract a £355 premium for five years from the first annual payment of £155 or £165. It’s expected that electric vehicles will be treated similarly to hybrid cars from 2025.
However, Hunt confirmed company car tax rates, which are also hugely preferential for electric cars, will remain lower for electric vehicles than for petrol and diesel cars. Company car drivers will pay two percent in Benefit-in-Kind (BiK) tax until 2025, after which a one-percent increase will be added every year until 2028.
The RAC’s head of policy, Nicholas Lyes, said the time had “probably” come for electric vehicle (EV) tax rates to increase.
“After many years of paying no car tax at all, it’s probably fair that the government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025,” he said. “Vehicle excise duty rates are unlikely to be a defining reason for vehicle choice, so we don’t expect this tax change to have much of an effect on dampening the demand for electric vehicles given the many other cost benefits of running one. The fact that company car tax increases on EVs will be kept low should also keep giving fleets the confidence to go electric which is vital for increasing the overall number of EVs on our roads.”