Extend the exemption for electric car tax!
7th March 2025
Posted in Articles by Andrew Marr
The rules for tax on electric cars (‘EVs’) are changing and from 1 April 2025 owners of EVs will no longer be exempt from Vehicle Excise Duty (‘road tax’). Therefore, EV owners should tax their cars before 31 March 2025 to save themselves up to £195.
From 1 April 2025 EV owners will pay the following road tax:
• For existing EVs (registered before 31 March 2025) – £195 per year in road tax.
• For new EVs (registered from 1 April 2025) with a list price of £40,000 or less – a reduced rate of £10 for the first year and £195 per year thereafter.
• For new EVs (registered from 1 April 2025) with a list price of more than £40,000 – the luxury car supplement of £425 per year will also be payable on top of the standard £195 rate from the second to the sixth year of ownership.
The car’s list price above includes any optional extras and unfortunately ignores any discounts offered by the retailer.
Tax your EV before 31 March 2025
The introduction of road tax is going to impact all EV owners. However, they can delay the impact of this new tax by one year, by taxing their car before 31 March 2025. They can currently ‘tax’ their car now for a further 12 months and pay the current rate of £0 for an EV. Clearly, the benefit of doing this will depend on when the vehicle’s current road tax is due for renewal. For example, a car due for renewal in April 2025 can effectively delay payment by an entire year and save the full £195. However, an EV which has renewed its road tax in February 2025 will only delay the introduction of the new charge by a couple of months. Although the savings are relatively small, for companies with a number of EV company cars, this could add up to thousands of pounds in savings and be an ‘easy win’ for a very quick task.
To renew your road tax you will need your vehicle’s log book and can click on the following link to access the government website: https://vehicletax.service.gov.uk/.
Forbes Dawson view
This seems to be a nice little trick to delay the time before road tax kicks in for electric vehicles. There will be some companies who have large fleets of electric vehicles and so significant savings could be achieved for a simple administrative task. This will also be relevant for vehicle leasing companies who are typically responsible for paying the road tax (although they may have to pass on the savings to end users). On this subject, it would be a good idea for companies which lease large fleets of cars to check that the leasing companies are following best practice here. Furthermore, we can perhaps expect EV list prices to start clustering below the £40,000 level to avoid the £425 annual ‘premium’.
However, generally the benefit in kind charges for EVs are still very attractive in comparison to petrol and diesel powered vehicles and this makes salary sacrifice arrangements very tax efficient. Employers and employees of existing schemes should review their policies to ensure that these additional costs can be deducted from gross pay to save unnecessary PAYE and NIC. With the right salary sacrifice scheme in place these individuals could find that over 50% of these increased costs can be offset by other tax savings.
