Seven in ten electric vehicles will be stung with the additional £410-a-year 'luxury car' premium tax when VED exemption ends next year
- EVs have always been exempt from VED but that will change from 1 April 2025
- Former Government said EVs will have to pay car tax to make the system 'fairer'
- 70% of EVs will be subject to an additional £410-a-year levy on 'luxury cars'
The end of electric vehicle car tax exemptions from next year could kill off demand for greener cars in Britain, a new report is warning.
From April 2025, EV owners will be forced to pay Vehicle Excise Duty (VED) - or car tax - for the first time under new rules introduced by the former Tory Government.
Not only will all EV owners face first-year showroom tax on new models and a standard rate thereafter, seven in ten battery-powered models will also be stung by a premium tax of £410 levied on 'luxury' models for five years.
Car magazine Auto Express says it will 'create further cost barriers for drivers looking to transition to EVs' and called on the new Labour Government to scrap the luxury car levy for battery-powered vehicles.
Vehicle Excise Duty exemptions will end for electric vehicles from 1 April 2025. Auto Express said it will 'create further cost barriers' preventing the switch to battery cars
In the Autumn Budget of 2022, former Chancellor Jeremy Hunt announced that electric cars will no longer be exempt from vehicle excise duty from 1 April 2025 in an effort to 'make our motoring tax system fairer', based on Government predictions that EVs would account for half of all new car registrations from next year.
However, demand for electric cars has dwindled since the 2022 announcement due to concerns about their upfront price and rapid depreciation - and both range and charge anxiety due to a underpopulated public charging network.
As such, EVs currently account for just 16.6 per cent of all registrations in the first half of 2024 - well below the 50 per cent expected by minister by next year.
Even car manufacturers have reacted to a slowdown in EV demand, not just in the UK but across Europe and globally, by delaying their plans to ditch new petrol and diesel cars for as long as possible.
And now Auto Express believes the end of excise duty exemptions could be another nail in the coffin for public appetite for EVs.
The ONS predicts VED input to the economy each year, and as half of all new vehicle sold in 2025 are expected to be electric, the Government wants to start generating a tax revenue from them to hit targets
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From 1 April, buyers of brand new electric cars are on course to pay £10 for first-year showroom tax, while the standard VED rate thereafter (which all other cars pay) will be £180 annually. This is based on current VED rates for 'alternative fuel vehicles', which are subject to rise in-line with RPI.
Owners of older EVs registered between 1 April 2017 and 31 March 2025 will be forced to pay the £180 standard rate from next year, while those who bought electric cars before April 2017 will be stung £20-a-year, despite being among the early adopters who shifted to greener motoring well ahead of the curve.
But what could put the brakes on demand is the 'luxury car' premium tax that will also be levied on EVs from next year.
If the standard VED rate remains at £180 per annum and the luxury car premium rate at £410, some EV drivers will see their annual car tax costs rise from zero up to £590 next year. VED rates are also expected to rise with RPI, so will likely breach £600 in total for pricier EV models
A Freedom of Information request by the automotive title - now part of the Carwow Group - to the DVLA discovered that almost a third (31 per cent) of cars are already subject to the 'premium' VED rate, which is currently £410 a year on top of the £180 standard rate from years two to six of ownership
It is estimated that 70 per cent of new EVs would be hit by this additional subsidy.
This is because electric cars typically cost significantly more than an equivalent motor with a combustion engine. The price difference is primarily due to the cost of the batteries, which means there are few 'affordable' EVs on the market today.
In fact, there are currently just eight new electric cars on sale in UK showrooms with starting prices of £30,000 or less.
While there are numerous other EV models priced below the £40,000 luxury car tax threshold, the addition of optional extras requested by customers can easily push the cost over it.
Even when buyers negotiate deals with dealers to get cars for a discounted rate, this isn't taken into account by the DVLA, which strictly uses the recommended retail price (RRP) with the options included to determine if a vehicle is subject to the premium tax rate.
If the standard VED rate was to remain at £180 per annum and the luxury car premium rate at £410, some EV drivers will see their annual car tax costs rise from zero up to £590.
It means over the course of the first six years of a new £40,000-plus EV being on the road, it will cost drivers a total of £2,960 in excise duty over this period.
Given there are now over one million EVs on our roads, by next April there should be a fresh quota of around 1.3million cars that will become taxable for the very first time.
With VED rates also due to be hiked in-line with RPI, the OBR committee has already significantly revised up its forecast for car tax revenue by £400million per year when also taking into account the rise in receipts from EVs.
Auto Express editor Paul Barker says that this will not only impact buyers of new EVs, but also those looking to purchase used electric cars under five years old, severely damaging attempts to move more drivers into EVs to help meet strict uptake targets.
'Regardless of the price paid for a used EV, the car will be liable if it was originally bought for more than £40,000 (the current level for the VED), and the vast majority are going to be caught up in this extra charge,' he explained.
'Some used EV buyers may not even know about the extra £410 a year cost until they go to tax their vehicles.
'Private and used vehicle uptake of EVs is not yet in a position to start adding cost barriers; more needs to be done to encourage drivers to move to this still-fledgling technology, not give another reason to hold off from making the shift.'
SMMT figures reveal that private uptake of EVs fell by almost 11 per cent in June, with less than one in five EVs bought privately.
Carwow's own data shows that, currently, just one in five UK motorists would consider an EV for their next car, with 43 per cent citing cost as the main issue.
'There are currently too many reasons for drivers to not make the switch, and this is yet another to add to the list,' Barker added.
'We therefore echo the SMMT's call to remove this punitive tax that will impact the uptake of electric vehicle and provide additional cost likely to dissuade consumers from the very vehicles the Government wants them to adopt.'
Brands delaying EV plans due to dwindling demand
Earlier this week, Renault became the latest big name in the motor industry to cast doubt on the transition to electric cars in the next decade, warning that sales of EVs have fallen behind schedule.
With Labour widely expected to bring forward the ban on sales of new petrol and diesel vehicles in Britain by five years to 2030, in Europe the date proposed for car makers to shift to EVs is 2035.
Asked about the French company's ambitions to become an EV-only brand by 2035, Renault CEO, Luca De Meo said: 'The truth is we are not yet on the right trajectory to achieve 100 per cent electric cars by 2035. That's the truth.'
Renault CEO, Luca De Meo (pictured), has said that the 2035 deadline for reaching 100% electric new cars is unrealistic and called for 'more flexibility' in the schedule to shift to EVs
Luxury German sports car maker Porsche also said this week that it was readjusting its own aims to switch to EVs.
Previously, it had stated that four in five new models sold by 2030 will be fully electric, but this week it watered down that goal.
It blamed a lack of customer demand and developments in the electromobility sector, saying in a statement only that it could now deliver on this promise if those factors warrant it.
'The transition to electric cars is taking longer than we thought five years ago,' Porsche said in a statement.
'Our product strategy is set up such that we could deliver over 80 per cent of our vehicles as all electric in 2030 - dependent on customer demand and the development of electromobility.'
Porsche said the transition to electric cars is 'taking longer than it thought five years ago,' as the German luxury sports car brand says it is unlikely to achieve its target of selling 80% EVs from 2030
The German company has also confirmed it will continue to sell the existing third-generation Cayenne SUV beyond 2030 with upgraded and cleaner combustion engines, despite it launching a new fourth-gen electric-only Cayenne next year
It went on to confirm it will continue to offer its largest model - the Cayenne SUV -with combustion engines beyond 2030.
It said it is developing a 'further upgrade' to the existing Cayenne Cayenne, which had received its extensive mid-life facelift last year. Each generation of car typically receives only one mid-life update before it is replaced or killed off entirely.
However, another facelift will mean Porsche can continue to sell it well into the next decade alongside the electric-only fourth-generation version that will arrive next year to appease demand for those who don't want EVs.
'Extensive technical measures will ensure that the twin-turbo engine is ready to comply with future legislative requirements,' Porsche said in a statement.
Porsche CEO Oliver Blume said: 'The Cayenne has always defined the sports car in its segment. In the middle of the decade, the fourth generation will set standards in the segment as an electric SUV.
'At the same time, into the next decade our customers will still be able to choose from a wide range of powerful and efficient combustion and hybrid models.'
Ford's electric car division boss has said that the brand's plans to go all-electric in Europe from 2030 was 'too ambitious' as he confirmed that the company will continue to offer hybrids
And Renault and Porsche are not alone in their concerns about the slow uptake of EVs.
Ford last week admitted it has hit reverse on its plans to sell only electric cars in Europe from the end of the decade.
In an interview with Autocar, Marin Gjaja, the boss at Ford Model E, said 'uncertainty' around EV demand and legislation has forced it to shelve the target of 2030 for ditching petrol and diesel models.
Marin Gjaja, chief operating officer at Ford's 'Model E' electric car division
He said 2030 was 'too ambitious' as he confirmed the company would continue offering new hybrid cars in Europe beyond that date.
Fiat's boss also recently confirmed it will reintroduce a petrol version of its 500 city car due to a lack of demand for electric vehicles, particularly among older drivers.
CEO Olivier Francois said the new 'mild-hybrid' Fiat 500 Ibrida will arrive in early 2026 due to a 'slower than anticipated uptake of EVs across Europe'.
German auto giant Mercedes-Benz this year announced it will extend the production cycle of one of its biggest-selling combustion cars due to concerns about EV take-up.
The A-Class hatchback, which was due to be retired by the end of this year, will continue to be built through to 2026 as part of a more 'flexible' Mercedes strategy for transitioning to EVs.
CEO Ola Källenius has said the company will continue to produce combustion-engine cars based on existing platforms well into the next decade because price parity between EVs and petrols 'is many years away'.
Fiat CEO Olivier Francois said the car firm would reintroduce a petrol version of its 500 city car due to a lack of demand for electric vehicles, particularly among older drivers
Audi has scaled back the rollout of EV models due to falling demand while VW has also adjusted its production outputs due to a combination of parts shortages and lower-than-expected sales.
Other manufacturers are reluctant to push ahead with ditching combustion engines.
Akio Toyoda, chairman at Toyota, said in January that battery-powered electric vehicles will never dominate the car market and make up no more than a third of global sales.
Toyoda said the shift to EVs is not the answer when a billion people worldwide live without electricity: 'We also supply vehicles to these regions, so a single BEV option cannot provide transportation for everyone,' he said.
'No matter how much progress EVs make, I think they will still only have a 30 per cent market share.'
In May, Toyota, Mazda and Subaru committed to bring to market smaller petrol engines to use alongside hybrid technology and adopt green biofuels to lower vehicle emissions.
Toyota, the world's biggest car seller, described the development as 'an engine reborn'.
Left to right: Subaru's CEO Atsushi Osaki, Toyota's CEO Koji Sato and Mazda's CEO Masahiro Moro confirm the three car companies have joined forces to develop new compact internal combustion engines in a bid to achieve carbon neutrality without relying solely on EVs
And Aston Martin Chairman Lance Stroll has also said the British sports car firm will keep making petrol models until it is forced to stop by regulators amid subdued demand for EVs.
'We will continue to make them [petrol cars] as long as we are allowed to make them. There will always be demand, albeit that will shrink,' he said in April.
But while many car brands are pushing back plans to go electric, Jaguar is not.
The British car maker - now owned by India's Tata - is ceasing production of all but one of its combustion-engine cars as it accelerates towards the company ambition to become an luxury all-electric brand from next year.
