Drivers opting for electric vehicles (EVs) over petrol or diesel cars are set to face a tripled likelihood of being impacted by the luxury car tax due to incoming regulations, as indicated by new data.
Auto Trader, which performed this research, has urged for a postponement in altering the vehicle excise duty (VED), suggesting that such changes could deter motorists from transitioning to electric.
From April 1, the Treasury plans to abolish the VED exemption currently enjoyed by environmentally friendly electric vehicles. Consequently, all EV owners will be subject to at least the standard rate of £195 starting from the second year after registration.
Furthermore, those purchasing an EV registered on or after April 1 costing more than £40,000 will also become liable for the expensive car supplement, dubbed the luxury car tax, amounting to £425 annually for years two through six following registration.
These modifications were unveiled in November 2022 by the then-Chancellor Jeremy Hunt of the Conservative government, who expressed his aim to “make our motoring tax system fairer”. The Labour Government is maintaining this policy.
Due to the elevated manufacturing costs associated with EV batteries, the pricing of many electric models tends to surpass those of conventional vehicles. Auto Trader disclosed that 56 per cent of the electric cars up to five years old listed on their website are priced above £40,000, contrasting to just 16 per cent for petrol and diesel automobiles of a similar age bracket.
Ian Plummer, commercial director of Auto Trader, has voiced concerns over giving consumers “additional reasons not to make the switch” to electric vehicles (EVs). He commented: “Despite the more uncertain global climate, it makes sense to delay these duty increases to ward off the risk of harming attitudes towards EVs for the sake of a marginal gain in revenues for the Treasury.
“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.
“That kind of difference is unhelpful for efforts to persuade drivers to switch.”
The current zero-emission vehicles (Zev) mandate stipulates that at least 28 per cent of new cars sold by each manufacturer in the UK this year must be zero-emission, typically meaning fully electric.
Last month, pure electric cars accounted for a market share of 25.3 per cent.
Manufacturers who fail to meet the Zev mandate or do not utilise available flexibilities—such as purchasing credits from other companies or increasing future sales—face a Government fine of £15,000 for each excess polluting vehicle sold.
The Government is currently reviewing responses from a recent consultation on potential amendments to the regulations, which may include provisions to help non-compliant manufacturers avoid penalties.
Steve Gooding, director of the RAC Foundation, has questioned the “Treasury’s logic” behind the costly car supplement changes, arguing that while those splashing out over £40,000 on a new vehicle might be expected to “reasonably be asked to dig a bit deeper to pay more tax”, this rationale doesn’t hold up for second-hand buyers due to rapid depreciation.
Gooding warned: “The risk is that the expensive car supplement could be having an unintended and, in policy terms, perverse impact at a time when the pressure is on to promote the attractiveness of used EVs as part of the decarbonisation of motoring.”
Quentin Willson, founder of FairCharge and advisory board member of EVUK, both advocates for electric vehicles, has voiced strong opposition to the EV expensive car supplement, stating: “I strongly disagree with the EV expensive car supplement.”
He criticised the current system, saying: “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.
“Ministers say we should drive EVs, while the Treasury creates tax barriers to put us off. This isn’t intelligent policy making in action.”
Meanwhile, a Treasury spokesperson defended the strategy, asserting: “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.”