Time for Tesla tax: Electric car owners are hit by road duty

ELECTRIC car and van drivers will start paying road tax from April 2025, the Chancellor announced yesterday.

Jeremy Hunt said pure electric (EV) motorists will have to fork out £165 a year and an extra £335 if the vehicle is worth over £40,000 – also known as a ‘Tesla tax’.

It will bring zero-emission vehicles into line with petrol and diesel cars.

At present, the former are exempt from road tax – officially known as Vehicle Excise Duty (VED) – as part of a bid by ministers to encourage drivers to switch to ‘greener’ cars.

The move got a mixed reception from motoring groups last night.

Some said scrapping the tax break threatened the Government’s target of banning sales of new petrol and diesel cars by 2030 – a key plank of its net-zero emissions strategy.

However, others said road taxes will be fairer because hard-pressed petrol and diesel drivers will no longer be subsidising the upkeep of roads on behalf of EV

‘Threat to net-zero emissions policy’

motorists, who tend to be wealthier. The change will close the growing black hole in the public finances created by more motorists going electric, with more than 650,000 EVs now on the roads. This was up from 230,000 in 2020.

The Office for Budget Responsibility forecast that motoring tax revenues would fall by more than £2billion by 202627 if the tax break remained in place.

Unusually, Mr Hunt’s move means that those drivers who bought EVs between April 2017 and 2025 will pay road tax from April 2025, rather than being restricted to vehicles registered after that month.

Normally, motoring levies are only applied on vehicles registered after the date on which they’re introduced.

It means hundreds of thousands of EV drivers who bought their cars in recent years, thinking they would always be exempt from road tax, will have to start paying it.

Drivers who bought pure EVs through work schemes will also begin paying more ‘ benefit in kind tax’ from 2025-26, when it will rise by 1 per cent to 3 per cent. By 2027-28 it will increase to 5 per cent.

The changes will also apply to pure electric motorbikes. The AA’s president Edmund King said: ‘There is no doubt the introduction of Vehicle Excise Duty on EVs and making EV company cars less attractive by increasing tax rates will slow the road to electrification.’

Research by the motoring group found that drivers were already delaying buying an EV due to soaring electric prices. A survey suggested as many as 70 per cent were. Nicholas Lyes, the RAC’s roads policy chief, said: ‘After many years of paying no car tax at all, it’s probably fair the Government gets owners of electric vehicles to start contributing to the upkeep of major roads from 2025.’

EVs can be 80 per cent cheaper per mile to run than combustion engine vehicles, but have a much larger up-front price tag.

Some cost as much as £10,000 more than their petrol or diesel equivalents, making them the preserve of middle and higher earners. The ‘ Expensive Car Supplement’ will apply to cars with a manufacturer’s list price exceeding £40,000.

It is also known as the ‘Tesla tax’ because most Tesla models come with a price tag of more than this.

At present, EVs are also exempt from the Expensive Car Supplement but it will apply for the first five years of ownership from April 2025.

The £165 Vehicle Excise Duty rate will begin being paid from the second year of ownership.