Figures suggest that drivers purchasing electric vehicles (EVs) may face a significantly higher likelihood of being subject to the luxury car tax under new vehicle excise duty (VED) rules.
Auto Trader, an online vehicle marketplace, conducted research indicating that the changes could deter consumers from making the switch to electric motoring. The company has called for a delay in the overhaul of VED, citing concerns about its potential impact on EV adoption.
The Treasury is set to remove the VED exemption for EVs starting April 1. This means that all EV owners will be required to pay at least the standard rate, which will be £195 per year from the second year after the vehicle’s registration. Furthermore, drivers who purchase vehicles registered from April 1 with a list price exceeding £40,000 will also be subject to the expensive car supplement, also known as the luxury car tax. This supplement amounts to £425 annually from the second to the sixth year after registration.
These adjustments were initially announced in November 2022 by then-chancellor Jeremy Hunt under the Conservative government, with the stated aim of “making our motoring tax system fairer.” The Labour Government is continuing this policy.
Due to the cost of manufacturing batteries, many EVs are priced higher than their conventionally-fueled counterparts. Auto Trader’s data reveals that 56% of EVs on their site, aged up to five years old, have a list price exceeding £40,000. In contrast, only 16% of petrol or diesel vehicles in the same age bracket surpass this price point.
Ian Plummer, commercial director of Auto Trader, expressed concern that these changes provide consumers with “additional reasons not to make the switch” to electric motoring. He suggested that “despite the more uncertain global climate, it makes sense to delay these duty increases to ward off the risk of harming attitudes towards EVs for the sake of a marginal gain in revenues for the Treasury.”
Auto Trader’s analysis found that EVs up to five years old are three-and-a-half times more likely to be affected by the expensive car supplement compared to internal combustion engine cars in the same age range, stating, “That kind of difference is unhelpful for efforts to persuade drivers to switch.”
The zero-emission vehicles (ZEV) mandate requires that at least 28% of new cars sold by each manufacturer in the UK this year must be zero-emission vehicles, generally meaning pure electric. Last month, the market share held by pure electrics was 25.3%.
Manufacturers that fail to comply with the mandate may face penalties, including fines. However, the government is currently reviewing feedback from a recent consultation on potential rule adjustments, which could include measures to help non-compliant manufacturers avoid penalties.
Steve Gooding, director of the RAC Foundation, a motoring research charity, suggested the government’s logic behind the luxury car supplement is that those purchasing cars over £40,000 can “reasonably be asked to dig a bit deeper to pay more tax.” However, he expressed skepticism about whether this logic applies to used car buyers, as the value of used vehicles “usually depreciates rapidly in the first couple of years.”
He added: “The risk is that the expensive car supplement could be having 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 advisory board member of EVUK, both pro-EV groups, voiced strong opposition to the EV expensive car supplement. He stated, “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 said: “The shift to electric vehicles will support growth and productivity across the UK and is crucial for tackling climate change. Our balanced approach ensures fiscal stability during the transition to electric vehicles, including by introducing vehicle excise duty on EVs from April 2025, while maintaining targeted incentives to encourage their uptake.”
