Drivers of electric vehicles will be required to pay taxes beginning in 2025.

By Maggie Last updated Nov 17, 2022

Drivers of electric vehicles will be required to pay taxes beginning in 2025. Electric vehicles will no longer be exempt from vehicle excise duty beginning in April 2025, according to the chancellor.

Jeremy Hunt announced the change as part of his Autumn Statement, saying it was intended to make the motoring tax system “fairer.”

The RAC motoring association stated that it does not expect the change to reduce demand for electric vehicles (EVs).

Others, including the Automobile Association, have warned that the move will reduce the incentive to switch to EVs.

“Because the OBR (Office for Budget Responsibility) forecasts that half of all new vehicles will be electric by 2025, I’ve decided that electric vehicles will no longer be exempt from vehicle excise duty from that date,” Mr. Hunt said.

Vehicle Excise Duty (VED) is a tax levied on vehicles that travel on UK roads. EVs are currently exempt. The cost varies depending on the vehicle.

According to the chancellor, company car tax rates for electric vehicles will remain lower than those for traditional fuel-powered vehicles.

“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,” said RAC head of policy Nicholas Lyes.

We don’t expect this tax change to have much of an impact on dampening demand for electric vehicles given the many other cost benefits of running one.”

The Local Government Association applauded the move, stating that while electric cars are far less harmful to the environment than gasoline and diesel vehicles, they still contribute to carbon emissions, traffic congestion, and road wear and tear.

“It’s only fair that drivers contribute to these additional costs and help support investment in even lower carbon alternatives like public transportation, buses, cycling, and walking,” said David Renard, the organization’s transportation spokesperson.

The AA, on the other hand, stated that the tax on electric vehicles would “slow the road to electrification.”

“This could postpone the environmental benefits and stall the introduction of EVs into the used car market. Sadly, the chancellor’s EV taxation actions will reduce the incentive to switch to electric vehicles “said Edmund King, president of the AA.

Another change announced in the Autumn Statement was the removal of the exemption for electric vehicles from the costly car supplement.

It means that anyone purchasing a new car, electric or otherwise, costing more than £40,000 will have to pay £165 in tax plus a £355 car supplement every year from the second to the sixth year of registration.

The Society of Motor Manufacturers and Traders chief executive, Mike Hawes, called the change to the expensive car supplement “the sting in the tail” of the announcement, adding that it “will unduly penalize these new, more expensive vehicle technologies.”

New petrol and diesel car sales are scheduled to be prohibited in the United Kingdom beginning in 2030.

This has raised the question of how the tax revenue generated by vehicle excise duty (VED) and fuel duty can be replaced. They raise approximately £35 billion per year.

In February, a committee of MPs proposed that the government consider “road pricing,” in which drivers pay based on the distance they’ve driven, the type of vehicle, and congestion.

This has previously been proposed but has proven unpopular. The RAC, on the other hand, believes that drivers now support the principle of “the more you drive, the more tax you should pay.”

The chancellor did not commit to this today.

However, with his announcement, electric car owners will go from paying no car tax to paying the same as owners of petrol or diesel cars in just a few years.

In addition, owners of more expensive models will have to pay an annual supplement for the next five years.

The chancellor’s announcement, according to Ryan Fulthorpe, the motoring expert at comparison site Go. Compare, is a “real blow” for electric car drivers.

“Traditionally, the environmental benefits of driving an EV, combined with the savings on operating costs, have been the primary reasons people switch away from a petrol or diesel car,” he said.

“Increasing the operating costs of an EV appears counter-intuitive, and could ultimately slow the market’s growth.”

Meanwhile, Ian Plummer, director of automotive company Auto Trader, stated that the move would “drive more would-be buyers away from EVs” at a time when other incentives are being phased out and high energy bills are diminishing the benefits of going electric.