February 27, 2024
Road tax (Vehicle Excise Duty)
The upcoming end of road tax exemption for EVs on April 1st, 2025 has financial implications for EV owners and prospective buyers. This article aims to provide a comprehensive overview of the changes and their impact on the adoption of cleaner transportation options.
The UK has been witnessing an unprecedented surge in electric car adoption, recently overtaking Norway in the number of registrations. This momentum prompted the government to revise its policies with a notable change in the scheduled termination of the road tax exemption for electric vehicles (EVs) from April 1st, 2025. Here, we explain what it means to electric car owners and prospective buyers in the UK.
Understanding Road Tax (Vehicle Excise Duty)
Let’s hit the road with basics, Road tax, officially Vehicle Excise Duty (VED), is an annual payment levied on motor vehicle owners who use or park on public roads across the UK with the intention of generating revenue for the maintenance and improvement of the country’s roads.
Calculation of the individual road tax relies on the carbon emission of the vehicle. In simple terms, this incentivises cleaner and more sustainable transportation by writing the check based on how much the car pollutes the environment.
Current exemption of electric cars
In line with these goals, fully electric cars have been exempt from the road tax (VED). To be eligible for this exclusion, the EV must draw electricity from specific sources, including home charging and external charging points. This exemption will continue until April 1st, 2025 meaning EV owners will not pay road tax until then.
Upcoming changes to Road Tax in April 2025
Jeremy Hunt said that the policy had been successful in bringing more EVs onto the roads and noted the need to make taxation “fairer”. Hence, the government announced the termination of the VED (or Road Tax) exemption for electric cars, effectively coming into effect on April 1st, 2025 applying to both new and existing electric cars.
The change in the policy direction is also reflected in the earlier announcement about the end of the expensive car supplement for vehicles exceeding £40,000 in value, again in April 2025.
Financial implications - how much will you pay?
Under the updated system, effective from April 1st, 2025, zero-emission vehicles will be subject to what is currently the first band rate of the road tax. This means new EV owners then will pay a reduced rate of £10 in their first year, followed by the standard rate of £180 annually from their second year onwards, with current rates.
For those who purchased their electric cars between April 1st, 2017, and March 31st, 2025, they will transition directly to the standard rate of £180 per year, bypassing the reduced first-year rate.
Furthermore, with the end of the expensive car supplement exemption for EVs, new owners of electric cars valued over £40,000, with current policy, will face an additional charge. Starting in their second year of ownership, they will contribute to the VED with an extra £390 annually for five years, based on the current rates. This might affect the long-term calculations for higher-value EVs.
More broadly, the Office for Budget Responsibility (OBR) estimates that the VED alone will generate £8 billion in the current financial year, a significant portion of the £11.3 billion spent on local and national road infrastructure last year. With the policy change in April 2025, the OBR anticipates an additional £515 million in tax revenues for the fiscal year 2025-26.
Conclusion and future outlook
The ending of the road tax exemption for EVs is a significant change to policy, but the government suggests that it’s a necessary step towards a more balanced transportation strategy in the UK. It will introduce additional costs for current and prospective EV owners - sometimes £600 a year in the case of some premium EVs, bringing EV road tax into parity with ICE vehicles.
Despite these changes, the government remains compliant with supporting the EV transition commitments. Various tax incentives, favouring Company Car Tax rates and charging point support schemes, underscore this commitment.
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