Electric car owners can no longer avoid vehicle excise duty (VED). Labour’s new budget has closed that loophole as part of its multi-pronged effort to balance the nation’s books. From 1 April 2025, EVs must pay for the right to drive on UK roads.
The government is yet to finalise all the terms of its restructured VED scheme, but it has confirmed its new first-year car tax rates. Now, any electric car registered on or after 1 April 2025 will pay £10 for its first year on the road until the 2029–30 tax year.
While this new charge is a little irritating for EV owners, it’s worth noting that electric cars will still pay the least amount of road tax. The government has also raised the tax rates for combustion engine cars in a move it says will ‘strengthen incentives’ for shifting towards electrified vehicles.
From next year, all combustion cars (including hybrids) that emit between 1–50g/km of CO2 will now pay £110 for their first year on the road. That’s an increase of £100 over the current rate. Plus, the tax rates for any vehicle that emits more than 76g/km of CO2 will double over their current figures.
The government hasn’t made it clear what the standard rate of tax for electric cars will be (for their second year on the road and beyond), but we’ll update you with those figures as soon as they’re confirmed.
The decision to make electric cars pay VED is an overhang from the old Tory government – but Labour has implemented it. The old Chancellor of the Exchequer, Jeremy Hunt, announced the change in his 2023 Autumn Statement.
He said: ‘To make our motoring tax system fairer, I’ve decided that electric vehicles will no longer be exempt from vehicle excise duty.’ Later, a tweet from the Treasury said the change would make sure ‘all motorists pay their fair share.’
Will the Expensive Car Supplement change?
Yes. The government is also making plans to raise the VED Expensive Car Supplement threshold for electric cars. It says it ‘recognises the disproportionate impact’ the scheme has on zero-emission vehicles, which are already more expensive than their petrol-powered equivalents.
Under the outgoing scheme, EVs that cost more than £40,000 when new (including options) would have had to pay an extra £410 per year from 2025. The charge would have been issued between the car’s first and sixth birthdays – and when it turned seven, its road would drop down to the standard flat rate.
Labour hasn’t yet confirmed what it’ll raise the threshold for the supplement to, but we’ll update you as soon as the figures are available.
What does the industry make of the change?
The prospect of introducing VED for electric cars is controversial. Since the government withdrew the Plug-in Car Grant, free road tax has become as the last remaining financial benefit for private buyers making the switch to an electric car.
But VED raises billions of pounds each year – and Labour is incredibly keen to fill the hole in the country’s finances that was dug by the Tories. Plus, electric cars will become far more common as we scream towards the 2030 ban on new petrol and diesel cars. So, making them exempt from VED has been judged unsustainable.
Nicholas Lyes, RAC head of policy, said of the changes: ‘After many years of paying no car tax at all, it’s probably fair the government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025.
‘While vehicle excise duty rates are unlikely to be a defining reason for vehicle choice, we believe a first-year zero-VED rate benefit should have been retained as a partial incentive. But we don’t expect this tax change to have much of an effect on dampening the demand for electric vehicles given the many other cost benefits of running one.’
