According to figures compiled by online vehicle marketplace Auto Trader, drivers who opt for electric vehicles (EVs) could face a three-fold increase in the likelihood of being subjected to the luxury car tax under new regulations. Auto Trader is advocating for a delay in the overhaul of vehicle excise duty (VED), arguing that it could discourage people from transitioning to electric vehicles.
From April 1, the Treasury is eliminating the VED exemption for EVs. This means that all EV owners will be required to pay at least the standard rate, which will amount to £195 annually, beginning in the second year after a vehicle’s registration.
Furthermore, drivers purchasing vehicles registered after April 1 with a list price exceeding £40,000 will also incur the expensive car supplement, often referred to as the luxury car tax. This supplement will cost £425 annually from the second to the sixth year following the car’s registration.
The changes were initially announced in November 2022 under the Conservative government by then-chancellor Jeremy Hunt, who stated the objective of making the motoring tax system fairer. The current Labour Government is continuing this policy.
Due to the cost of battery manufacturing, many EVs are priced higher than their conventionally fueled counterparts. Auto Trader reports that 56% of EVs on its site, which are up to five years old, have a list price exceeding £40,000. In contrast, only 16% of petrol or diesel engine cars in the same age range exceed that price point.
Ian Plummer, the commercial director of Auto Trader, maintained that it’s not right to give consumers “additional reasons not to make the switch” to electric motoring. He added that, considering the uncertain economic climate, it would be sensible to delay these duty increases. This would remove the risk of harming attitudes towards EVs in return for a small boost in Treasury revenues.
He also noted that EVs up to five years old on their site are three and a half times as likely to be hit by the expensive car supplement as internal combustion engine cars in the same age range. “That kind of difference is unhelpful for efforts to persuade drivers to switch,” he added.
Under the zero-emission vehicles (ZEV) mandate, at least 28% of new cars sold by each manufacturer in the UK this year must be zero-emission, typically meaning pure electric. Last month, the market share held by pure electrics was 25.3%. Failure to comply with this mandate, or to utilize flexibility options such as buying credits from competing companies or making more sales over the coming years, will result in a requirement to pay the government £15,000 per polluting car sold above the limits.
The government is currently analyzing feedback from a recent consultation regarding proposed changes to these rules. These changes could potentially include making it easier for non-compliant manufacturers to avoid penalties.
Steve Gooding, the director of the RAC Foundation, a motoring research charity, suggested that the Treasury’s logic behind the changes to the luxury car supplement is that those spending more than £40,000 on a vehicle “can reasonably be asked to dig a bit deeper to pay more tax”. He expressed doubt, however, that this logic applies to people buying used cars, as their value “usually depreciates rapidly in the first couple of years” from when new.
He went on to say that the risk is that the expensive car supplement could have an unintended and, in policy terms, perverse impact at a time when the pressure is on to promote the attractiveness of used EVs as part of the decarbonisation of motoring.”
Quentin Willson, founder of FairCharge and an advisory board member of EVUK, both of which are pro-EV groups, said, “I strongly disagree with the EV expensive car supplement. Six hundred and twenty pounds a year to tax most EVs will discourage private buyers who get no incentive whatsoever to switch from combustion to electric. Ministers say we should drive EVs, while the Treasury creates tax barriers to put us off. This isn’t intelligent policy making in action.”
A Treasury spokesperson responded that the shift to electric vehicles will support economic growth, increase productivity across the UK and is crucial for tackling climate change. They also stated that the government’s balanced approach ensures fiscal stability during the transition to electric vehicles, and this includes introducing the vehicle excise duty on EVs from April 2025 while maintaining targeted incentives to encourage their uptake.
