A recent report has issued a warning that the removal of electric vehicle (EV) car tax exemptions from next year could potentially stifle demand for eco-friendly vehicles in the UK.
From April 2025, EV owners will be required to pay Vehicle Excise Duty (VED), also known as car tax, for the first time due to regulations introduced by the previous Conservative government. Not only will all EV owners face a first-year showroom tax on new models and a standard rate thereafter, but seven out of ten battery-powered models will also be hit with a premium tax of £410 imposed on 'luxury' models for five years.
Auto Express magazine has claimed this will 'create further cost barriers for drivers looking to transition to EVs' and has urged the new Labour Government to abolish the luxury car levy for battery-powered vehicles. In the Autumn Budget of 2022, former Chancellor Jeremy Hunt declared that electric cars would no longer be exempt from vehicle excise duty from 1 April 2025 in an attempt to 'make our motoring tax system fairer', based on Government forecasts that EVs would represent half of all new car registrations from next year.
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However, since the 2022 announcement, demand for electric cars has waned due to worries about their initial cost and rapid depreciation - and both range and charge anxiety due to a sparse public charging network. As a result, EVs currently makeup just 16.6 per cent of all registrations in the first half of 2024 - significantly below the 50 per cent predicted by ministers by next year.
Car manufacturers are responding to a slowdown in demand for electric vehicles (EVs), not just in the UK but globally, by delaying their plans to phase out new petrol and diesel cars. From April 1, those purchasing brand new EVs could face a £10 first-year showroom tax, with a standard Vehicle Excise Duty (VED) rate of £180 annually thereafter, which may increase with the Retail Price Index (RPI).
Owners of older EVs registered between 1 April 2017 and 31 March 2025 will be required to pay the £180 standard rate from next year. Those who purchased electric cars before April 2017 will face a £20 annual charge, despite being early adopters of greener motoring.
However, the 'luxury car' premium tax that will also apply to EVs from next year could further dampen demand. A Freedom of Information request by an automotive title revealed that nearly a third (31 per cent) of cars are already subject to the 'premium' VED rate, currently £410 a year on top of the £180 standard rate for the second to sixth years of ownership.
It's estimated that this additional charge would affect 70 per cent of new EVs. The reason for this is that electric vehicles generally come with a heftier price tag than their combustion engine counterparts. The main factor driving up the cost is the price of the batteries, resulting in a lack of 'affordable' EVs currently available in the market.
*All figures quoted below are based on current Vehicle Excise Duty rates for 'alternative fuel vehicles/ which are subject to increases in 2025.
- Owners of 'older' EVs registered before April 2017
The most surprising factor in the changes to the VED system announced in 2022 is that early adopters who own older EVs will retrospectively be hit. Drivers of older electric cars - those registered before April 2017 - will be forced to pay VED as the Government said they will no longer qualify for £0 'Band A' VED and will be moved to Band B (currently £20-a-year).
Given that EVs were not mainstream before 2017, this should impact a smaller pool of drivers.
- Owners of EVs registered between April 2017 and March 2025
Exemptions ending in 2025 will mean owners of the latest battery vehicles - who likely bought them on the premise that they offered cheaper running costs - will be forced to pay £180 per annum. This impacts drivers of models registered between 1 April 2017 and 30 March 2025.
With car tax rates subject to yearly increases in line with RPI, the £180-a-year cost to alternative fuel vehicle owners could increase from April. Those who own EVs registered from 01/04/2025 will be liable to pay the additional rate of £410.
This means some existing EV owners will have to £590 for car tax next year.
- Buyers of brand new EVs
Any new model registered from 1 April 2025 will be liable to pay the lowest 'first year rate' of VED - also known as the 'showroom tax' - which currently stands at £10 for the first 12 months. However, from the second year, they will move to the 'standard rate' of £180 a year.
As outlined above, buyers of new EVs with an RRP over £40k will be hit with the £410-a-year premium tax from year two to six.
2024-07-27T13:30:17Z dg43tfdfdgfd