Massive tax hikes for electric vehicles introduced by Labour on 1 April will further stall demand for battery cars in Britain and add another major hurdle for manufacturers to meet binding green sales thresholds.
The warning comes from the automotive trade body as it published January new car sales figures showing EV registrations falling well behind mandated targets.
From 1 April, EV owners will be forced to pay Vehicle Excise Duty (VED) for the first time under measures implemented by minsters to make the car tax system ‘fairer’.
This will see owners incur a standard rate of £195 per year for all EVs registered from April 2017.
And in a second blow, zero emission cars will also be subject to a £425 ‘expensive car tax’ supplement levied on all motors costing over £40,000, which will impact around seven in ten battery models, experts have warned.
As such, removal of VED exemption for EVs from April will trigger an annual increase in running costs by as much as £620.
Mike Hawes, chief executive at the SMMT, described it as ‘the wrong measure at the wrong time’.
Massive tax hikes for EVs from 1 April 2025 will further stall demand for battery cars in Britain and add another major hurdle for manufacturers to meet sales targets, the SMMT says
The motor industry trade body on Wednesday confirmed a 2.5 per cent fall in new car sales in January.
It blamed ‘weak consumer confidence and tough economic conditions’ for a fourth consecutive month of declining registrations.
Sales of new petrols cars dropped by 15.3 per cent while out-of-favour diesels slipped another 7.7 per cent and now make up just one in 16 vehicle purchases.
Plugging the hole left by oil burners is greener fuel types.
Both conventional self-charging hybrids (HEVs) and plug-in hybrids (PHEVs) recorded volume growth last month to increase market share to 13.2 per cent and 9 per cent respectively.
But it is EVs that saw the most dramatic jump in sales.
Industry figures published Wednesday show new car sales slipping by 2.5% in January. The trade body blamed ‘weak consumer confidence and tough economic conditions’
Battery electric vehicles accounted for more than one in five (21.3%) new car sales last month. While this is near record levels for EV market share, it is will short of binding targets set out by Government
Mike Hawes, chief executive at the SMMT, said car tax hikes for EV owners was ‘the wrong measure at the wrong time’ as manufacturers face an uphill task to meet binding sales targets
Trade body sounds alarm on meeting binding EV sales targets this year
Of the 139,345 motors registered in the first month of 2025, 29,634 were pure-electric models, the data shows.
This is a significant 41.6 per cent increase in EV sales compared with January 2024 and means zero-emission cars made up more than a fifth (21.3 per cent) of all new motors entering the road last month.
However, this is still well below the required threshold set out by binding EV sales targets introduced last year.
The ZEV mandate forces car makers to sell an increasing volume of EVs between now and 2035. The SMMT says manufacturers are already falling short, despite offering huge discounts on new models to attract customers
Under the Zero Emission Vehicle (ZEV) mandate, mainstream auto makers are required to have a 28 per cent share of electric car sales by the end of 2025 – a share that will increase annually up to the full-scale ban on new motors powered by fossil fuels, including hybrids, in the middle of the next decade.
Failure to meet this threshold could see manufacturer incur fines of £15,000 per electric vehicle short of the required quota.
The SMMT said additional ZEV mandate flexibilities – currently under consultation – are essential and must deliver meaningful changes urgently because manufacturers are already lagging behind the 28 per cent target for this year.
That’s despite motor companies offering significant discounts on new electric cars to make them more appealing to drivers.
In 2024 alone, the trade body claimed car makers had provided EV discounts totalling £4.5billion.
With consumers ‘still reticent’ to make the switch, introduction of car taxation for EVs on 1 April ‘comes at the worst time for the industry’ and risks ‘undermining the goal of a mass market transition’, Hawes warned.
He added: ‘January’s figures show EV demand is growing – but not fast enough to deliver on current ambitions.
‘Affordability remains a major barrier to uptake, hence the need for compelling measures to boost demand, and not just from manufacturers.
‘The application, therefore, of the ‘Expensive Car Supplement’ to VED on electric vehicles is the wrong measure at the wrong time. Rather than penalising EV buyers, we should be taking every step to encourage more drivers to make the switch, helping meet government, industry and societal climate change goals.’
Despite the SMMT’s concerns about car makers failing to meet ZEV requirements, electric car campaigners believe the mandate’s credit-based system means manufacturers are still on track.
New AutoMotive – a green think tank backing the shift to EVs – says the mandate allows credits to be earned when a manufacturer reduces the CO2 emissions of the new petrol, diesel and hybrid vehicles it sells each year.
It says these CO2 emission credits earned the industry an extra 3 per cent towards the 22 per cent quota for 2024.
When added to the 19.6 per cent share of EV sales recorded last year, it said all manufacturers should have successfully evaded ZEV fines.
‘Behind the data are more and more people making the switch to electric cars – and it’s no surprise. They’re cheaper to run, better for the planet, and a lot more fun to drive.’ New AutoMotive CEO Ben Nelmes said.
‘Even with all the uncertainty around the government’s review of EV targets, electric car sales are still going up.
‘The UK is fast becoming a leader in Europe when it comes to electric cars.’
Owners of electric vehicles will be required to pay Vehicle Excise Duty – or car tax – for the first time from 1 April 2025. We explain how much they will have to pay…
How much car tax will EV drivers pay from April?
Until now, one of the big benefits of electric vehicles is the financial incentives that have come with them.
Amongst the biggest of these has been VED exemption.
However, that will change from April when owners of zero emission vehicles will have to start paying car tax the same way as drivers of petrol and diesel cars do.
During his Autumn Budget statement in November 2022, then-Chancellor Jeremy Hunt 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.’
Despite the OBR’s previous projections for EV sales being wide of the mark – in 2024 accounting for just 19.6 per cent of all registrations – the Labour party will push ahead with Hunt’s changes and subject those driving zero emission vehicles to car tax.
The new rules around car tax apply to electric vehicles new and old, meaning some drivers could be stung up to £620 a year for VED on a car they’ve been driving for years
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 internal combustion engine cars.
This will increase with RPI (Retail Price Index) inflation. Currently, the standard rate of car tax is £190 but will rise to £195 from 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 full 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 2021 and April 2017 will be subject to the lowest VED brand costing £20.
This will only impact a small volume of drivers, given EVs were relatively rare in these years and very much in their infancy.
Owners of EVs costing more than £40k new will be subject to the ‘expensive car supplement’ additional tax for the first time. For electric cars, this has been dubbed the ‘Tesla tax’
EV owners also stung by ‘Tesla tax’ supplement
EVs from 1 April 2025 will also be subject to the ‘expensive car supplement’ levied on all models with an on the road price of £40,000 or more.
It has been referred to as a ‘Tesla tax’ because no vehicles sold by the American EV-maker are priced below the supplement’s threshold, which has remained unchanged since it was set eight years ago.
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.’
On top of the standard VED rate of £195 paid from the second year following registration, owners of current EVs up to six years old and priced above £40,000 will have to pay the additional premium rate, which is due to jump to £425 from 1 April.
As such, drivers of £40k-plus EVs that have been paying zero car tax until now are set to be hit with annual VED costs of £620.
It will impact a significant proportion of the EV market.
Car magazine Auto Express estimates that seven in ten battery cars will be stung by the expensive additional tax and will ‘create further cost barriers for drivers looking to transition to EVs’.
While there are numerous electric cars priced below the £40,000 additional tax threshold, the inclusion of optional extras requested by customers when new will likely push some of these vehicles into the expensive supplement bracket.
Even when buyers negotiate deals with dealers to get EVs 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.
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