Electric car buyers three times more likely to be hit by new luxury car tax rules
Electric car buyers are three times more likely to be hit by the luxury car tax compared to petrol or diesel drivers under new vehicle excise duty (VED) rules, according to new analysis.
The findings have prompted calls for a delay in the VED overhaul, with concerns raised about deterring the switch to electric vehicles.
From April 1, the Treasury will end the VED exemption for electric vehicles (EVs). This means all EV owners will pay at least the standard rate, rising to £195 annually from the second year of registration.
The changes, announced in November 2022 by then-Chancellor Jeremy Hunt, aim to create a “fairer” motoring tax system, a policy continued by the current Labour government.
However, the most significant impact will be felt by those purchasing EVs with a list price over £40,000. These buyers will face the expensive car supplement, commonly known as the luxury car tax, adding an extra £425 annually for years two to six after registration.
Online car marketplace Auto Trader, which conducted the research, suggests this change will disproportionately affect EV buyers, making them three times more susceptible to the luxury car tax. The company argues this could discourage potential EV adopters, hindering the transition to electric motoring.
It is urging the government to reconsider its timeline, suggesting a delay could allow for a more equitable system that supports the growth of the electric vehicle market.
The cost of manufacturing batteries means the price of many EVs is higher than for conventionally fuelled cars.
Auto Trader said 56 per cent of the electric cars up to five years old on its site have a list price in excess of £40,000.
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For those in the same age range with a petrol or diesel engine, the percentage is just 16 per cent.
Ian Plummer, commercial director of Auto Trader, said it is wrong to give consumers “additional reasons not to make the switch” to electric motoring.
He added: “Despite the more uncertain global climate, it makes sense to delay these duty increases to ward off the risk of harming attitudes towards EVs for the sake of a marginal gain in revenues for the Treasury.”
Under the zero-emission vehicles (Zev) mandate, at least 28 per cent of new cars sold by each manufacturer in the UK this year must be zero-emission, which generally means pure electric.
The market share held by pure electrics in February was 25.3 per cent.
Failure to abide by the mandate or make use of flexibilities, such as buying credits from rival companies or making more sales in future years, will result in a requirement to pay the Government £15,000 per polluting car sold above the limits.
The Government is analysing feedback from a recent consultation on proposed changes to the rules, which could include making it easier for non-compliant manufacturers to avoid fines.
Steve Gooding, director of motoring research charity the RAC Foundation, suggested the “Treasury’s logic” for the expensive car supplement changes is that someone spending more than £40,000 on a car can “reasonably be asked to dig a bit deeper to pay more tax”.
But he expressed doubt that this is the case for people buying used cars as their value from new “usually depreciates rapidly in the first couple of years”.
He added: “The risk is that the expensive car supplement could be having an unintended and, in policy terms, perverse impact at a time when the pressure is on to promote the attractiveness of used EVs as part of the decarbonisation of motoring.”
Quentin Willson, founder of FairCharge and advisory board member of EVUK, which are both pro-EV groups, said: “I strongly disagree with the EV expensive car supplement.
“Ministers say we should drive EVs, while the Treasury creates tax barriers to put us off.
“This isn’t intelligent policy making in action.”
A Treasury spokesperson said: “The shift to electric vehicles will support growth and productivity across the UK and is crucial for tackling climate change.
“Our balanced approach ensures fiscal stability during the transition to electric vehicles, including by introducing vehicle excise duty on EVs from April 2025, while maintaining targeted incentives to encourage their uptake.”
