Incoming car tax changes are ‘concerning sign of what may lay ahead’

Jeremy Hunt announces changes to electric vehicle tax

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In November, Chancellor Jeremy Hunt unveiled the Government’s Autumn Statement, in which it was revealed that electric cars would soon have to pay Vehicle Excise Duty (VED). From April 1, 2025, all electric car owners will be required to pay the standard rate of road tax VED, which is currently £165 per year.

From the second year of registration onwards, zero emission cars will move to the standard annual rate.

The Autumn Statement included a decision to no longer exempt EVs from the £335 “premium supplement” on new cars. 

That means that any person buying an EV worth £40,000 or more could have to pay a whopping £520 for road tax, despite being the greenest option.

A policy review from the Government and HMRC found that the impact of EVs paying tax will generate £515million in the first year.

Between the 2026 and 2027 financial year, £985million will be raised, followed by £1.595billion the following year.

The measure is not expected to have any significant macroeconomic impacts, nor will it impact “family formation, stability or breakdown”.

The report acknowledges that removing the VED exemption from April 2025 will marginally reduce the incentive to switch to electric vehicles.

However, it says the impact should be minimal given the marginal cost of VED compared to the overall cost of a vehicle.

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The Government has also announced the continuation of incentives for electric vehicles through company car tax, which will likely continue to be effective in incentivising EV take-up, and investment in chargepoint infrastructure.

While the new car tax changes come into force from April 2025, many experts warned that drivers may be put off from buying a new EV.

Nick Zapolski, founder of ChooseMyCar, said that the new “Tesla Tax” could put many people off buying an EV, and that it would spark concerns that the benefits of EV ownership will be eroded over time.

He added: “While our research suggests people are interested in EV ownership, it’s undeniable that the high purchase price of new EVs – and the lack of second hand ones on the market – mean it’s out of reach for many drivers. 

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“Any new tax on them will just exacerbate this situation – and could be seen as an indication that other benefits of EV ownership are under threat.

“This new ‘Tesla tax’ means that some people will now be paying more for their road tax than someone in an old banger, which is not in line with the Government’s green credentials.

“While we appreciate that the higher amount of EV drivers means a drop in road tax, this seems a huge step up and is a concerning sign as to what may lay ahead.”

As of November 2022, there were more than 620,000 battery-electric vehicles on UK roads.

Last year saw the biggest annual increase in number of registrations, with more than 395,000 battery-electric cars registered, showing a growth of 92 percent compared to 2020.

Electric car registrations continue to rise in absolute numbers, with 29,372 new registrations of battery-electric cars in November 2022.

In total, this gives electric vehicles a market share of 20.6 percent of all new car registrations.

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