Drivers opting for electric vehicles (EVs) over petrol or diesel models are now three times more likely to be subject to the luxury car tax under new tax regulations, according to research by online vehicle marketplace Auto Trader. The changes, set to take effect from April 1, could disincentivize consumers from making the switch to electric motoring, raising concerns among industry experts.
The Treasury’s decision to end the vehicle excise duty (VED) exemption for electric cars means all EV owners will be required to pay at least the standard rate of £195 annually from the second year onward. Additionally, vehicles with a list price exceeding £40,000 will be subject to an expensive car supplement, increasing their annual tax burden to £425 for years two to six.
Industry Voices Concern Over Policy Impact
Auto Trader’s analysis reveals that 56% of electric cars up to five years old listed on its platform have a price tag above £40,000, compared to just 16% of petrol or diesel cars in the same age range. Ian Plummer, Auto Trader’s commercial director, criticized the policy, arguing that it provides “additional reasons not to make the switch” to EVs at a crucial time for the industry.
“EVs up to five years old on our site are three-and-a-half times more likely to be hit by the expensive car supplement than internal combustion engine cars in the same age range,” Plummer said. “That kind of difference is unhelpful for efforts to persuade drivers to switch.”
Steve Gooding, director of the motoring research charity RAC Foundation, also questioned the fairness of the tax, particularly for used EV buyers. “The risk is that the expensive car supplement could be having an unintended and perverse impact at a time when the pressure is on to promote the attractiveness of used EVs as part of the decarbonization of motoring,” he said.
Contradictions in EV Adoption Strategy?
The UK government has mandated that at least 28% of new cars sold by each manufacturer in 2024 must be zero-emission vehicles (ZEVs). Manufacturers failing to meet this target could face fines of up to £15,000 per polluting car sold above the limit. However, the higher taxation on EVs could hinder this transition, critics argue.
Quentin Willson, founder of FairCharge and advisory board member of EVUK, strongly opposed the expensive car supplement for EVs. “Ministers say we should drive EVs, while the Treasury creates tax barriers to put us off. This isn’t intelligent policy making in action,” he said.
With the cost of battery production keeping EV prices high, experts warn that additional taxes could discourage private buyers from adopting greener alternatives. “Six hundred and twenty pounds a year to tax most EVs will discourage private buyers who get no incentive whatsoever to switch from combustion to electric,” Willson added.
Government Defends Balanced Approach
A Treasury spokesperson defended the decision, stating, “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.”
As the debate continues, the government faces increasing pressure to reconsider the tax structure to align financial policies with its environmental goals. With the EV market share reaching 25.3% last month, any policy missteps could risk slowing down the momentum towards a cleaner automotive future.
