Electric car tax changes explained

Electric car owners in the UK are facing significant changes to vehicle taxation, impacting running costs and the financial benefits of owning an electric vehicle (EV). These adjustments, initially announced in the Autumn Statement 2022, mean EVs are no longer exempt from Vehicle Excise Duty (VED) and are also subject to the expensive car supplement. For company car drivers, Benefit-in-Kind (BiK) rates are set for gradual increases.

Understanding these upcoming changes to electric car tax is crucial for managing your running costs. Fuse Energy helps you stay in control of your home charging and energy bills.

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Current electric car tax rules

Until recently, EVs enjoyed considerable tax advantages aimed at encouraging their adoption.

Vehicle Excise duty (VED) for EVs

Electric cars registered before 1 April 2025 were exempt from VED, often referred to as road tax. This exemption was a key financial incentive for EV ownership, meaning a zero annual cost for VED for many electric vehicle drivers. However, owners still needed to 'tax' their vehicle, even if the cost was £0. This exemption ended on 1 April 2025, aligning EVs more closely with petrol and diesel vehicles for VED purposes .

Benefit-in-Kind (BiK) for company electric cars

For those with company electric cars, Benefit-in-Kind (BiK) rates have been significantly lower than for petrol or diesel equivalents. This low BiK rate made company electric cars an attractive option, offering substantial tax savings for employees and employers alike . BiK tax applies to company cars and is administered by HMRC.

Upcoming VED changes from April 2025

The landscape for electric car taxation has shifted, with new rules coming into effect that align EVs more closely with traditional internal combustion engine vehicles.

VED exemption ends

Since 1 April 2025, electric cars are no longer exempt from VED . This means all new and existing electric vehicles are now subject to the same VED rates as petrol and diesel cars. The changes to electric vehicle taxation were announced in the Autumn Statement 2022 .

Standard rates apply

From 1 April 2025, electric cars registered after 1 April 2017 are subject to a £10 first-year VED rate and a standard rate of £190 from the second year onwards . VED is a tax levied on vehicles used on public roads, administered by the DVLA .

Expensive car supplement

The expensive car supplement now applies to electric vehicles. This supplement affects vehicles with a list price over £40,000, adding an extra £410 per year for five years from the second year of registration . For fully electric vehicles registered from April 2026, the threshold for this supplement increases to £50,000 . This means higher-value EVs will incur a significantly increased annual tax burden .

Benefit-in-Kind tax: gradual increases

The tax advantages for company electric cars are also undergoing changes, with BiK rates set to increase gradually over the coming years.

BiK rates for electric vehicles

Benefit-in-Kind (BiK) rates for electric vehicles are set to increase gradually. For the 2025/26 tax year, the rate is 3%, rising to 4% in 2026/27 and 5% in 2027/28 . While still significantly lower than rates for petrol and diesel cars, which can exceed 37% , this represents a steady rise from previous very low rates, including 0% in April 2020 .

Impact on company car drivers

These gradual increases mean company car drivers will see their taxable benefit rise, impacting their take-home pay . It is crucial for company car drivers and fleet managers to factor these changes into their financial planning to understand the true cost of company EV ownership .

Potential future tax schemes

Beyond the confirmed VED and BiK changes, discussions are ongoing about how road usage might be taxed in the future.

Road pricing and mileage-based taxation

Discussions around potential future road pricing or mileage-based taxation schemes are ongoing, but no specific implementation dates or rates have been confirmed by the UK government . These schemes could involve drivers paying based on the distance they travel, potentially varying by location or time of day .

Why future schemes are being considered

The shift to electric vehicles means a reduction in fuel duty revenue, a significant source of income for the Treasury . Future tax schemes are being considered to ensure sustainable funding for road maintenance and infrastructure, adapting to a future where fewer vehicles rely on fossil fuels .

Mitigating rising costs with smart charging

While tax costs for electric cars are increasing, there are actionable strategies EV owners can employ to regain control over their running costs.

Optimising home charging with off-peak tariffs

Smart home charging solutions allow EV owners to charge their vehicles during off-peak hours when electricity is cheaper. By scheduling charging to coincide with lower electricity rates, drivers can significantly reduce their energy spend. The average UK home uses around 2,500 kWh of electricity per year , and smart charging can help manage this consumption more efficiently. This can be particularly effective when paired with a smart meter installation to track usage.

Fuse Energy: your partner in cost management

Fuse Energy's smart home charging solutions and off-peak tariffs are designed to empower EV owners to offset rising tax costs. With Fuse, you can manage your energy consumption effectively, ensuring your electric car is charged at the most economical times. This capability helps you regain control over your energy budget, turning increased costs into an opportunity for smart energy management. Fuse also offers 24/7 human customer support to help you navigate complex energy tariffs and optimise your charging strategies. For more insights into efficient electric vehicle charging at home, explore our guides.

Frequently asked questions

When do the electric car tax changes take effect?

The primary electric car tax changes, including the end of VED exemption and the application of standard rates, took effect from 1 April 2025 .

Will all electric cars pay the same VED?

No, not all electric cars will pay the same VED. While electric cars are now subject to VED, the rates vary. For cars registered after 1 April 2017, they pay the lowest first-year rate of £10 and the standard rate of £190 from the second year onwards . Additionally, vehicles with a list price over £40,000 are subject to an expensive car supplement .

How does the expensive car supplement work?

The expensive car supplement applies to vehicles with a list price over £40,000, or over £50,000 for fully electric vehicles registered from April 2026 . It adds an extra £410 per year to the VED for five years, starting from the second year of the vehicle's registration .

What is the future of electric car tax in the UK?

Discussions are ongoing regarding potential future road pricing or mileage-based taxation schemes for all vehicles, including EVs . However, no specific implementation dates or rates have been confirmed by the UK government at this time . The aim is to ensure sustainable funding for road infrastructure as fuel duty revenue declines with increased EV adoption .

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