Labour will launch a massive car tax sting on Britain’s drivers this year – but for electric vehicle owners there is a way to defer costs for almost 12 months.
Up to three quarters of motorists are said to be unaware of major increases to Vehicle Excise Duty (VED), coming into force from 1 April 2025, despite staggering car tax rises.
These will cost those buying some new petrol and diesel models a whopping £5,490 annually, while new electric cars costing more than £40,000 will face a £620 yearly charge.
Along with hitting new car buyers, there are also VED charges for owners of existing EVs for the first time ever.
While electric car drivers have until now benefited from zero VED costs, from April they will be hit with an annual standard rate of £195 – the same paid by drivers of recent petrol and diesel motors.
However, if you are an electric car driver, there is an easy way to evade the £195 car tax sting for a year. We explain how to use this simple loophole below.
Own an EV? Here’s how you can defer the Chancellor’s car tax raid on electric vehicles for another 12 months…
Savvy drivers can take advantage of the current VED exemption for fully electric cars by taxing their existing car early before 1 April at no cost.
Motorists can renew tax on their car in any month they want, no matter when when it is due to expire.
EV drivers – who currently enjoy VED-free driving – will incur no additional cost if they tax their car by 31 March, even if their current taxation period isn’t due to end for months.
By re-taxing their EV online before 1 April – using the car’s registration number and reference number from the V5C log book – drivers can enjoy tax-free motoring until March 2026.
This will save them the new standard rate of tax of £195 for another year.
Rachel Reeves (pictured) in October told MPs during her Autumn Budget statement that wholesale changes to Vehicle Excise Duty will raise £400m a year
How much car tax will EV owners pay from April 2025?
The decision to force EV drivers to start paying car tax was made by former Chancellor Jeremy Hunt during his Autumn Budget in November 2022.
At the time of the announcement, he told MPs: ‘Because the OBR (Office for Budget Responsibility) forecast half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I’ve decided that from then, electric vehicles will no longer be exempt from vehicle excise duty.’
Reeves confirmed this and made other changes to VED rates during the new Chancellor’s first Budget, in what was dubbed a stealth tax on petrol and diesel cars.
This came despite the OBR’s previous projections for EV sales being wide of the mark – in 2024 they accounted for just 19.6 per cent of all registrations.
Here’s how EVs of different ages will be impacted by the new rules…
New EVs registered on or after 1 April 2025
Buyers of new EVs will pay £10 for first-year showroom VED.
From the second year after registration, these EVs will be subject to the same standard rate of VED as levied on all internal combustion engine cars.
This is increasing in line with RPI (Retail Price Index) to £195 from 1 April.
EVs registered between 1 April 2017 and 31 March 2025
Owners of existing EVs registered between 1 April 2017 and 31 March 2025 – electric cars that have until now evaded VED costs – will be forced to pay the standard VED rate of £195 from 1 April.
EVs registered between 1 March 2001 and 31 March 2017
Even early adopters of electric cars won’t avoid the tax sting.
EVs registered between March 2001 and April 2017 will be subject to the lowest VED band costing £20.
This will impact a smaller volume of drivers, given EV registrations were relatively rare during the noughties and early 2010s as battery cars were very much in their infancy.
Buyers of new EVs costing more than £40k from 1 April 2025 will be subject to the ‘expensive car supplement’ additional tax, dubbed a ‘Tesla tax’
New EVs over £40,000 hit for £620
Not only will all EV owners face car taxation for the very first time, any new battery-powered model registered after 1 April that is priced above £40,000 will also be subject to the ‘expensive car supplement’.
This has been levied on petrol, diesel and hybrid vehicles costing in excess of £40,000 registered after April 2017 and is added to the standard rate (£195) for five years (from the second year after the car was registered to the sixth), giving a total annual cost of £620.
Critics have pointed to the £40,000 threshold remaining the same since 2017 and not increasing with inflation, which would put the value up to £58,000 today.
As such, many EVs – which are often priced at a £10,000 premium over combustion engine equivalents – fall into the expensive car supplement bracket.
For this reason, it is often referred to as the ‘Tesla tax’ because no vehicles sold by the American EV-maker are priced below the supplement’s threshold.
The DVLA confirms: ‘New electric and zero emission vehicles registered on or after 1 April 2025 with the list price exceeding £40,000 will attract the standard rate, plus the expensive car supplement for the first 5 years from the start of the second licence.’
Car magazine Auto Express estimates that seven in ten battery cars registered in the UK annually cost over £40,000 and would therefore be eligible for the supplement.
It said this will ‘create further cost barriers for drivers looking to transition to EVs’.
While there are some smaller electric cars – commonly with limited ranges – priced below the £40,000 threshold, even some of these will be herded into the premium tax bracket.
That’s because the £40,000 cost isn’t based on the price customers pay but the recommended retail price (RRP) inclusive of optional extras – such as metallic paint, bigger wheels and more interior entertainment features – requested by customers when they order their vehicle.
Even when buyers negotiate deals with dealers to get EVs for a discounted rate, the RRP inclusive of options is the value used by the DVLA to determine if the car falls into the ‘expensive car’ classification.
The Society of Motor Manufacturers and Traders, which represents UK car makers, described it as ‘the wrong measure at the wrong time’ that will put a further strangehold on limited private EV demand.
It has instead called for the VED expensive car supplement to be scrapped for EVs or the price threshold of £40,000 to be increased to take into account the premium cost of electric models.
In a recent survey of 2,286 petrol and diesel vehicle drivers by leasing provider Zenith, 41 per cent said they’d only be encouraged to move to an electric car if they became more affordable, while a third claimed financial incentives would persuade them to transition.
Given that EVs have until now been exempt from VED and cost nothing to tax until now, the extra costs associated with the tax changes fly in the fact of what Britons say would convince them to go electric ahead of the 2030 ban on sales of new petrol and diesel cars.
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