Electric car owners could face taxation from 2025

Taxes on electric car and van owners are one of the plans being considered by the Chancellor to be part of his Autumn Statement, according to reports over the weekend.

The move could bring in car tax, as vehicle excise duty is commonly known, for pure electric vehicles, which are currently exempt. 

Jeremy Hunt is said to be considering how and when to introduce taxation for the greenest models on the road to plug the £35billion revenue black hole that will be created when more drivers switch to electric cars by the end of the decade.

With the 2030 deadline for the sale of new petrol and diesel cars very much on the horizon and owners of battery cars currently avoiding both fuel duty and vehicle excise duty, road taxation bills for EV drivers could be introduced within three years, according to The Telegraph.

A Whitehall source told the newspaper than electric vehicles would be subject to taxation ‘at some point’, though the Treasury is still trying to understand ‘when that should be’.

With around one in six new cars bought in the UK this year being fully electric models and the ban on sales of traditional combustion-engine motors due at the end of the decade, billions of pounds in annual revenue generated from driver will rapidly diminish.

Because they run solely on electricity, battery car owners only pay VAT when charging their vehicles at home (5 per cent VAT) and using public devices (20 per cent VAT).

And with road taxation currently based on a car’s exhaust emissions, zero tailpipe-emission electric cars are currently exempt from annual charges.

While VED is considered one of the existing benefits of switching to less polluting cars, ministers are mindful that this will soon become a revenue issue when battery vehicles take an even larger share of the market in the coming years.

Chancellor, Jeremy Hunt, could reveal plans in the Autumn Statement next month for the Government to introduce taxes on electric cars by 2025 as sales continues to accelerate

With the ban on sales of new petrol and diesel cars in 2030 on the horizon, ministers are being pushed to accelerate plans to plug the £35bn-a-year revenue black hole from lost fuel and vehicle excise duty

One of the options The Telegraph claims is being considered by the new Chancellor to help plug the projected hole in public finances is for EV drivers to begin paying VED from the 2025/26 financial year.

This could even be announced in his Autumn Statement, which is due to be outlined in the Commons on 17 November.

The Whitehall source told the paper that ‘everyone knows that electric vehicles will have to be subject to road tax at some point’ but the Treasury faces the difficult decision of when to implement it and how without ‘disincentivising uptake’ of cleaner vehicles in the short-term while trying to meet strict air pollution reduction targets.

Earlier this year, the Commons transport committee released a report urging the Government to start an ‘up-front conversation’ with drivers about new ways they could be taxed as £35billion in annual revenue will be lost under current tax rules.

Fuel duty nets an estimated £28billion a year, while VED brings in around £7billion annually.

The Government has previously guaranteed that electric vehicles will remain VED exempt until at least 2025, though it is looking increasingly likely that the Treasury will inflict some form of levy on these cars and vans from the middle of the decade with the outlawing on sales of new petrol and diesel cars just five years down the line.

The transport committee recommended in February that electric vehicle owners should pay a ‘road pricing’ scheme.

This would charge drivers per trip, based on the distance travelled, duration of the journey and vehicle type.

It had also put forward the same scheme in April a year earlier, saying it was ‘one of the best fiscal changes’ to make. 

Latest figures show that 14.5% of all new cars sold in Britain this year are battery electric vehicles. In September alone, over one in six registrations were BEVs

The transport committee has called for a road pricing scheme to be introduced for EV drivers. This would charge per trip based on distance travelled, duration of journey and vehicle type

Prime Minister Rishi Sunak is believed to be a big supporter of road pricing, having been ‘very interested’ in its introduction as a long-term alternative to VED during his tenure as Chancellor.

The committee’s February report also urges ministers to set up an arms-length body to recommend a new regime by the end of this year.

At the time it was published, a government spokesman said it was committed to keeping the transition to electric cars ‘affordable for consumers’.

The Society of Motor Manufacturers confirmed recently that the one millionth plug-in electric car – including both fully-electric and plug-in hybrid models – had been sold in Britain in September.