A tax levied on “luxury” electric cars, coming into force next year, is “at odds” with the government’s net zero ambition, a business advisory firm has said.
Electric vehicles (EVs) registered on or after April 1, 2025 and worth more than £40,000 will be taxed in line with government policies. The current rate amounts to £410 a year, from the second to sixth year of the vehicle’s registration.
In addition, changes to Vehicle Excise Duty (VED), coming into effect next year mean that EV owners will have to pay for road tax for the first time.
In the first year, new EVs will pay the lowest VED rate of £10 a year, followed by £190 from the second year onward. This means that the total road tax bill for EV drivers with an “expensive” car will go up to £600 a year.
Tax partner at RSM UK consultancy, Steve Brown, told The Epoch Times in an emailed statement that introduction of higher taxes on electric car purchases “may well be counter-productive.”
“[It] appears at odds with the government’s ambitious plans to reduce the country’s carbon emissions,” he said.
The government’s Net Zero Strategy aims to decarbonise all sectors of the UK economy and achieve net zero by 2050. Policies brought forward under net zero plans include phasing out petrol and diesel vehicles by 2035.
The transition is “crucial to decarbonising transport,” the government said in the October Budget, adding it will support growth and productivity across the UK.
Disproportionate Impact
In the Budget, Chancellor Rachel Reeves said that lower VED rates for electric cars, compared to hybrid and internal combustion engine cars, will incentivise EV sales.The government is also maintaining EV incentives in the Company Car Tax regime and extending 100 percent First Year Allowances for zero emission cars and EV chargepoints for a further year, the Chancellor announced.
While the government has acknowledged “the disproportionate impact” of the expensive car supplement £40,000 threshold, it said it won’t be considering any changes until a future fiscal event.
“Zero-emission cars can already come with a premium price tag and some may feel they are paying a penalty for trying to do the right thing. Whilst the government has identified this is a potential issue, it’s not clear why a decision has been kicked down the road.
“It could deter some from making a purchase until there is more certainty and slow the growth of sales of new electric vehicles,” said Brown.
Commercial Director at Auto Trader, Ian Plummer, has welcomed the announced incentives for EV owners, but noted the impact of the expensive car supplement.
“The changes to Vehicle Excise Duty promoting lower emission vehicles in the recent budget announcement is exactly the kind of government action we need to see more of and so it’s a shame, when we’re aiming for a fair and equal transition, the electric car supplement (ECS) hasn’t seen such treatment.
“With the ECS eligibility threshold frozen and electric car RRPs on average a third more expensive than petrol counterparts, it’s likely the previous government had put this policy in place without monitoring market dynamics and the real impact it would have on the UK’s electric transition.
“With the EV exemption soon coming to an end and two thirds of EVs also impacted by the ECS—compared to less than half of internal combustion engine cars—EVs will feel the full brunt of this policy,” he told The Epoch Times in an emailed statement.
He called on the government to raise the threshold for used electric cars to £50,000 to help aid a “smooth and fair electric transition.”
