As Britain approaches significant changes to its Vehicle Excise Duty (VED), a wave of anxiety has swept through the electric vehicle (EV) community as well as petrol and diesel car owners. Starting from April 1, 2025, new taxation rules will aim to ease the financial burden on electric vehicle owners while imposing heavier costs on traditional petrol and diesel models.
Recently, Rachel Reeves, a notable figure in the Labour Party, has been urged to introduce a £5 discount on car tax for over a million EV drivers. This initiative could be bolstered by a reduction in Value Added Tax (VAT) on EV charging, as indicated in the AA’s latest EV Recharge Report. This report suggests that EV drivers could save nearly £5 per charge at ultra-rapid chargers. The proposed discount is viewed as a necessary measure to help households without off-street parking, potentially alleviating what has been referred to as the "pavement tax"—an additional burden for many households needing to rely on public charging points.
Jack Cousens, the head of roads policy at the AA, echoed this sentiment, stating that Chancellor Reeves has a unique opportunity to support the transition to electric cars. Cousens said, "Cutting VAT to match the domestic rate of five percent will help households without dedicated off-street parking avoid the so-called 'pavement tax'. As well as saving drivers nearly £5 a charge, it would encourage those changing their car to opt for one with a plug." The ramifications of these potential new policies extend beyond mere discounts. EV drivers could notably save up to £520 a year if they charge their vehicles twice a week. Even charging once a week could lead to a substantial saving of £260.
While some drivers may feel buoyed by the prospect of savings, others are concerned with an imminent tax increase. The DVLA plans to impose road tax on EVs starting April 2025, which many are anticipating will run around £195 a year. Martin Lewis, the prominent money-saving expert, has emphasized the urgency for EV owners to act before these changes take place. In a recent episode of his ITV programme, Lewis highlighted a loophole allowing EV owners to re-tax their vehicles at zero cost, if done before the deadline. "If you go onto Gov.uk now, and you re-tax it now while it's free," Lewis explained, "that will last a year. And you can do that even if it isn't a year since you last taxed it—it could be just two months ago!"
This loophole suggests that motorists have until March 31, 2025, to undertake this action in order to avoid newly instituted charges that will set in from April. For those renewing their vehicle registration, there’s an opportunity to maintain tax-free motoring for an extra year. However, conditions have significantly shifted for those with petrol and diesel vehicles, who will face harsher financial consequences starting next month.
With taxation for petrol and diesel models set to double on first-year fees, these vehicles—particularly the most polluting—are poised to absorb drastic increases. For instance, first-year charges for cars emitting over 255g/km of CO2 will jump from £2,745 to £5,490, an unprecedented rise in the costs associated with newer models. Additionally, standard VED fees for cars registered after 2017 will rise from £190 to £195.
This strategy aims to address the escalating emissions problem, as cars producing over 76 g/km of CO2 are experiencing a double increase in taxation. The effects are not just limited to new cars; older models from 2001 and earlier will also experience modest price increases starting next week, showcasing a comprehensive overhaul of the entire road taxation system.
Meanwhile, within the electric vehicle arena, the changes mean that EVs first registered before April 2017 will have the lowest annual road tax rate of just £20. Furthermore, those purchasing new electric vehicles will face a one-time £10 showroom tax but will be spared the hefty road tax increases seen with higher pollution vehicles.
Although these changes are framed as a means to promote greener driving habits, they also underscore a transition that could disproportionately impact various groups of drivers. Richard Evans, from webuyanycar, remarked on how tax changes appear to indicate that the cost of electric motoring is set to rise, while emphasizing that currently, EV drivers have room to avoid immediate charges until the tax exemption period expires at the end of March 2025.
As drivers ready themselves for these looming tax adjustments, it remains critical for both electric and petrol/diesel vehicle owners to understand how these policies will affect them. The alteration of prices could potentially shift consumer behavior toward more eco-friendly vehicles, thereby nudging Britain closer to its climate goals while catering to the financial realities of everyday motorists. Whether these new policies will drive significant behavioral changes remains to be seen.
The clock is ticking for drivers to take advantage of re-taxing options available before the upcoming deadline. As individuals assess the pros and cons of transitioning to electric vehicles versus remaining with traditional petrol and diesel models, Britain’s aspiration for greener transportation may hang in the balance.
