Last article I have written was covering how council tax is due to become more expensive next April. Sorry to say – there are further bad news. This time the hit is going towards drivers who own an electric vehicle. As of 2025 they will be charged with vehicle excise duty – same as petrol and diesel cars currently.
As the UK budget is currently in a significant deficit – there is a need to look for new ways to generate income. Electric cars was just that. They currently have no excise duty to be paid for.
Many argue that this currently is a big incentive as to why some are switching to electric cars. If this is going to be taken away the move towards green cars has potential to slow down significantly.
current vehicle excise duty
As it currently stands – the drivers of electric vehicles use the same roads as the rest of us. They however get a bonus – there is not need to pay annual VED.
As you can see from the image below – the current VED stands at £165 for most vehicles registered after 2017. Electric cars with no emissions are the exception here.
As the adoption of these vehicles has accelerated lately – the government started loosing out on the taxes they collect. As a result, a proposal to start taxing electric car owners. The intention for the proposal is to raise incremental tax to cover at least parts of the budget deficit.
The move won’t come into effect for another 2 and a bit years. So this was simply put out there as an early warning.
2025 electric vehicle proposal
What the government has said – they are currently looking to tax electric vehicles in line with petrol and diesel cars. This would stand at £165 per annum.
The first year however – there will be a discount. The first year payment will only be £10.
On top of the above – the VED will also impact older electric vehicles. Every car registered after 2017 will have the same annual excise duty to pay.
Weirdly though – electric cars registered between 1st of March 2001 and 30th of March 2017 will only pay £20 VED per annum. This point is something that I didn’t really understand. The only logical explanation – the government is trying to get drivers of older cars to switch to electric vehicles as well?
I personally see arguments for both sides when it comes to this proposal. From one side – drivers of electric vehicles are using the same roads as the rest of cars do. They should also contribute to the maintaining these.
On the other hand – there should be an additional incentive for people to switch to greener cars. This should be in place to help us reduce the pollution. The air in the cities impacts everyone – not only the ones who choose to drive.
electric company car tax change
On top of the above – there is further bad news. This will impact those who have electric vehicles as their company car. For those who have an electric company cars – you currently pay only 2% benefit-in-kind tax on the car.
What the government is planning to change – 3% benefit-in-kind tax as of 2025. This will grow to 5% by 2027. This is not a massive change however definitely adds up.
This is still way better than what some diesel and petrol company car owners are expected to pay. Their benefit-in-kind tax can be as high as 37%. This is only the case for those who chosen cars have high emission levels.
Once again, the government is trying to increase the income it get’s from taxes. They are however doing it in a more mindful way when it comes to company car tax. Similar logic should have been applied to excise duty charged to use an electric car on the road.
If you want to better understand the benefit-in-kind tax you are currently paying on your company car – there are many online calculators to use. One example of these can be found here. This can also be a useful tool before choosing your next company car.
summary
The tax changes lately have only been bad news for everyone around. Not only we have to pay a lot more for everything due to crazy inflation but also be mindful of the taxes that the government wants to collect.
While I agree with the approach to the way the company car tax is currently being proposed, the VED makes very little sense to me. There should be an incentive for people to switch to electric vehicles if these are actually better.
One way the government is considering to increase the cost of petrol or diesel vehicles – increasing the fuel duty in the near future. Not only the oil price is making it really expensive to own a car currently but also the additional fuel duty to be concerned about on top of this.
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