Electric car lease customers will now have to pay vehicle excise duty (VED) road tax from 2025 onwards.
Up until now, electric vehicles (EVs) were exempt from both the annual, second-year £165 VED standard rate payment, as well as the ‘luxury supplement’ payment of £335-per-year which new cars with a list price in excess of £40,000 command.
Now, however, Chancellor Jeremy Hunt has used the budget to state that owners of emission-free cars and vans will now have to pay VED, beginning in 2025, as well as the premium supplement for cars over 40K.
While our own David Lewis, Head of Electric Vehicles & Energy at Select Car Leasing, has described the move as 'disappointing', he also points out that such a step was 'inevitable' and expected by the industry.
And the great news for lease customers - particularly those looking for a company car- is that there are actually some important silver linings to take from the announcement.
David says:
“It was always inevitable that EV owners would one day have to pay vehicle excise duty or a similar tax so this doesn’t come as a great surprise. Road tax generates billions for the Treasury each year - and as more and more people move to EVs, that’s a large fiscal gap to plug.
In my view EV road tax has been brought in at least two, three years ahead of time, as a reaction to a challenging financial outlook. And while that’s disappointing on the face of it, our view is that it absolutely should not be a deal-breaker’ for those looking to get behind the wheel of an EV."
For lease customers, VED road tax is automatically included into your agreement.
That won't change in light of the new announcement on EVs - which should give you added peace of mind.
There's also good news for business lease customers who pay Benefit in Kind (BIK) tax on their company car.
The BIK rate for EVs currently stands at 2% - much lower than traditionally-fuelled vehicles. That rate is set at 2% until 2025.
And Jeremy Hunt says he's 'listened to industry bodies' and will limit the BIK tax rate increase to just 1% a year for three years from 2025 onwards - up to 5% by 2028.
That's still a low BIK rate compared with a petrol or diesel car. A petrol Audi A3 hatchback, for example, would have a BIK rate of around 30%.
Select's David adds:
"The first year VED for zero emission cars from 2025 will be set at the lowest rate - £10 - before moving to the standard rate of £165 a year.
There’s also good news for company car owners, too. Jeremy Hunt has promised to keep Benefit in Kind (BIK) rates for EVs low, with a small 1% per year increase from April 2025, for three years.
We know from our own data that more and more people are leasing an EV as a company car, taking advantage of low tax rates and company Salary Sacrifice schemes, so the low BIK rate rise is a welcome step.
Since the summer alone, business lease enquiries at Select Car Leasing have increased by 24%. That’s a significant rise that reflects the growing appetite for overall, and our Fleet Solutions team is working hard for businesses across the UK. And from a leasing perspective, I’d urge anyone looking to drive an EV to act now before the VED rules apply in three years’ time.”
Mr Lewis says it’s also crucial cash-strapped UK motorists understand that they can still save money when driving an EV compared with a traditionally-fuelled car - even if they will ultimately have to pay road tax from 2025.
Our new online fuel cost calculator suggests you can save in excess of £1,000 per year on fuel with an EV - a figure based on driving 10,000 miles in a year, charging your electric vehicle at home at the new 34p Energy Price Guarantee rate, and compared with a typical petrol or diesel car with a fuel efficiency of around 40 mpg.
He adds:
“We should be incentivising EV ownership as much as we can, not giving people a reason to turn away from it. So motorists need reminding of all the benefits of driving an EV. Even with the rising cost of electricity, you can still save hundreds of pounds on your annual fuel bill.
The Benefit in Kind (BIK) tax payments for EV company cars are also temptingly low - just 2% - compared with a traditionally fuelled car. And it’s also important to point out that when you lease any car, your VED road tax is covered for the entire duration of your agreement, so it’s not a cost you need to consider.
Above all else, let’s not make the introduction of road tax for EVs a reason not to go green.”
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