UK EV Drivers No Longer Exempt From Vehicle Tax After 2025: British Chancellor

The Chancellor of the Exchequer, Jeremy Hunt, delivers his autumn statement in the House of Commons in London, England, on Nov. 17, 2022. PA

British Chancellor of the Exchequer Jeremy Hunt announced on Thursday that electric vehicle (EV) owners will no longer be exempt from paying vehicle tax, beginning in 2025.

In his autumn statement, Hunt said the vehicle tax, known as vehicle excise duty (VED), will end in April 2025, in order to make the motoring tax system “fairer.”

“Because the OBR [Office for Budget Responsibility] forecasts half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I’ve decided that from then, electric vehicles will no longer be exempt from vehicle excise duty.”

However, EV owners will stay pay less tax than those who drive conventional vehicles.

He added: “Company car tax rates will remain lower for electric vehicles, and I have listened to industry bodies and will limit rate increases to one percentage point a year for three years from 2025.”

Currently, owners of EVs are exempt from paying VED, which is charged to all other vehicles that drive on roads in the United Kingdom.

First-year VED payments are related to their carbon emissions, with drivers of relatively fuel-efficient petrol or diesel cars paying up to £25 ($29) for the year that they first register their vehicle, while those who own less fuel-efficient cars can pay anything up to £2,365 ($2,822).

A Tesla electric vehicle is seen through a charging point displayed during a media day for the Auto Shanghai show in Shanghai, China, on April 20, 2021. Aly Song/Reuters

New Vehicle Tax Is ‘Fair’

A flat rate of £165 ($196) is paid in subsequent years, regardless of the carbon emissions.

Under the new plan, EVs registered from April 2025 will pay £10 ($11) in the first year, before paying the standard flat rate of £165 ($196) in subsequent years, the BBC reports. That flat rate will also apply to EVs that were registered after April 2017.

Nicholas Lyes, the head of the British automotive services company RAC, welcomed the move, adding that he does not anticipate the tax change will have much of an impact on dampening demand for EVs, pointing to the “many other cost benefits of running one.”

“After many years of paying no car tax at all, it’s probably fair the government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025,” Lyes said.

“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.”

A customer prepares to charge his Tesla electric vehicle after parking in a bay for EVs at a supermarket in north London, on Nov. 18, 2020. Daniel Leal-Olivas /AFP via Getty Images

‘The Chancellor Is Clearly Looking for Revenues’

However, Ian Plummer, director of automotive classified advertising company Auto Trader, raised concerns that the removal of the tax exemption could prompt a decline in demand from potential EV buyers at a time of soaring inflation.

“The chancellor is clearly looking for revenues, but the prospect of additional running costs will drive more would-be buyers away from EVs when other incentives are being scrapped and high energy bills are eroding the advantages of going electric,” Plummer said. “An excise duty raid is deeply unhelpful and sends the wrong message if we’re to be serious about getting EVs into the mainstream.”

The decision by the UK government comes after a Consumer Reports 2022 Annual Auto Reliability survey released on Tuesday found that EVs are among some of the least reliable vehicles sold in the United States.

In its survey of owners of more than 300,000 vehicles from the 2000 to 2022 model years as well as early 2023 models, Consumer Reports found that owners of electric vehicles reported issues with charging systems, batteries, and electric motors.

The study noted that while Tesla continues to be the “market leader in EV sales and the manufacturer on which Consumer Reports received the most data from owners,” only the Model 3 has average reliability, while all the other Tesla models—the S, Y, and X—have below-average reliability.