One of the biggest changes announced in the Autumn budget is to the tax status of electric vehicles, coming into force in April 2025, the start of the new tax year. Electric cars will pay significantly more in some cases.

In this article, we’ll cover exactly what electric car owners will be expected to pay, and how it's changing.

Tax Implications For Electric Cars?

• VAT: Value-added tax is applied to all sales, and is charged at 20%. Most business buyers can claim this back
• VED: Vehicle Excise Duty AKA Road Tax - there are two types:
  • First-year VED: a special rate paid in the first year
  • Second-year onwards VED: the yearly rate of VED
• Expensive Car Supplement: AKA Luxury Car Tax is a fixed additional fee for the first 5 years, applied to all cars over a certain sale price

What Will the Budget Mean for New EVs?

Announced in late 2024, significant changes to the vehicle excise duty (road tax) will come into force in April 2025, the most impacted will be owners of electric vehicles.

First Year Road Tax (VED) for New Electric Vehicles

Currently, electric vehicles are exempt from a first-year VED charge, in April 2025 that will change; any vehicle registered after April 1 will incur a £10 first-year VED.

Whilst this ‘first year’ rate has risen for EVs, it is still agreeable compared to many petrol and diesel vehicles that will be taxed according to their emissions level, with some costing many hundreds of pounds for the first year.

Second Year Onward Road Tax (VED) for New Electric Vehicles

This is where the biggest change has come, whereas electric cars were exempt from VED before, after April 1st 2025, they will pay the same £195 as petrol and diesel cars. This also applies to all-electric cars registered from 1st April 2017.

What Will the Budget Mean for Existing EV Drivers?

Regardless of the age of your car, you will now pay some kind of road tax/VED, how much exactly depends on the year of first registration. The thresholds are usually the 1st of April, as this is when budget announcements often come into force, as it’s the start of the tax year.

EVs Registered Between 1st March 2001 and 31st March 2017

From 1st April 2025, any electric car registered before March 2017 will pay £20 per year VED. 

Currently (prior to April 2025) electric cars of this age do not pay any VED.

Electric Cars First Registered After 1st April 2017

Electric cars registered after 1st April 2017 will now pay £195 per year in VED. This includes any EVs including those registered after 1st April 2025.

This is probably the biggest shift in the taxation of electric cars, as those who bought them in part to benefit from the free road tax, at any point in the last 8 years, will now pay the same road tax as a higher-polluting diesel vehicle!

Expensive Car Supplement and Electric Cars

Also known as the Luxury Car Tax, this is an additional VED amount of £410 per year, that is payable on the first 5 years the vehicle is taxed. It only applies to cars with a sale price of over £40,000. This applies to both EVs and petrol/diesel vehicles.

Does the Luxury Car Tax Apply to Older Electric Cars?

No, the expensive car supplement will only apply to EVs that are registered on or after the 1st April 2025. Any car that is registered before that date will not pay any extra tax, even if its sale price is above £40,000.

April Tax Changes Affect on Older Electric Cars

Many of the changes, including the luxury car tax on EVs, only apply to cars registered after April 2025, but one of the biggest changes will come to those currently enjoying tax-free motoring in an older electric car. 

By my calculations, using rough sales estimates year by year, there are nearly 2 million EVs on the road that were registered after April 2017, all of these will now pay £195 per year in tax, alongside their diesel and petrol counterparts.

Considering this may well have been the reason why so many adopted EVs, and the fact that pre-2017 cars, both diesel, petrol and electric will attract much lower taxes, this could well reduce the demand for newer EVs.

Are Electric Cars still Cheaper to Tax than Petrol and Diesels?

It depends on the age of the vehicle, but especially when buying new, it is generally still more tax-efficient to buy an electric car. 

This is because even though many electric cars are subject to the £410 per year expensive car supplement, many similar (luxury or SUV cars) petrol and diesel vehicles will be hit with a large first-year tax bill too. Even the most expensive EVs will only pay £10 in first-year VED. 

Even a modest vehicle, like the 1.0-litre petrol Fiat 500, will be more to tax than the battery equivalent. Its 105g of CO2 per km costing the owner £390 in first-year tax, and £195 every year after. The 500e being just £10 in year one, then £195 per year.

Tesla Road Tax Examples

As one of the most common electric cars in the UK, here is a good breakdown of what you’ll pay to run a new or used Tesla, under the new regulations. 

New Tesla VED and Luxury Car Tax

An example of the tax paid on a new Tesla, registered after April 1st 2025.

These figures are using the base model of each offering, for the Model 3 this is the rear wheel drive version, without any optional extras, selecting any options will add the £410 per year tax.

I have excluded the new Model S and Model X, as they are no longer available in right-hand drive in the UK.

Older Tesla Models VED

As the luxury car tax only applies to electric after April 2025, there are no older Teslas that will incur this, however, the age of the car will determine the VED payable:

• Teslas registered before April 2017:  VED of £20 per year
• Teslas registered after April 2017, before April 2025:  VED of £195 per year

Final Words

How you feel about the aforementioned tax changes will probably depend on how you are affected. In some ways it makes sense, but cars are getting more and more expensive. If the government wants to encourage EV adoption, the £40,000 threshold might need to be looked at.

Whether your car is an EV, petrol or diesel, something that can ease your finances is using Bumper’s zero-interest car repair financing. Find a local approved partner here.

Author - Joseph Law

Joseph has been writing about cars for over seven years and writing for Bumper for over two, blending his passion for automobiles with a talent for storytelling.

Joseph has written about engineering and cars for Autozilla, Komaspec, and several engineering manufacturers. When he's not writing or tinkering with one of his cars, Joseph dreams of owning an Alfa Romeo 33 Stradale.