Earlier this month, Chancellor Jeremy Hunt unveiled the Government’s Autumn Statement in which he announced that electric vehicles would start paying vehicle excise duty (VED) from 2025. Mr Hunt said this was being done to create a “fairer” system of motoring tax. Industry experts criticised the move, saying it would dampen EV sales and cause motorists to think twice about choosing an electric vehicle.
The Electric Car Scheme is calling on the Government to reconsider its plan to raise company car taxes on electric vehicles, just as the shift to clean cars needs a shot in the arm.
The organisation said it was pleased that Chancellor Jeremy Hunt had provided “at least some certainty” to the industry with his plan to slowly raise company car tax rates for fully electric vehicles from two percent to five percent between 2025 and 2028.
But given this tax raise will bring in a tiny amount of money for the Government while dampening demand for electric cars, it asks why the Government is bothering to make the hike.
It suggests that the Government consider freezing the rate until 2030 instead, as Germany has, or 2035 when new sales of petrol and diesel cars will be banned. Budget documents show the rise is expected to raise £95million in 2025 and 2026, £155m in 2026 and 2027, and £245m in 2027 and 2028.
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Against total Government receipts of £1202billion in 2027/28 the amount raised is essentially meaningless for the Government’s overall fiscal position, and yet recent polling suggests tax incentives were the deciding factor for 78.2 percent of electric company car buyers.
Thom Groot, co-founder and CEO of the Electric Car Scheme, said this forecast hike came just as the electric car market needed a boost. He said: “Only one percent of the total fleet is electric, and they made up just 14.8 percent of new sales in October – shockingly a lower rate than in October of 2021, when they made up 15.2 percent of new car sales.
“We understand that the Government was looking for extra revenue where-ever it could be found. But this hike raises very little money – while potentially making the cost of the transition to electric harder for everyone.
“Today’s company cars are tomorrow’s second-hand cars, so we need a steady stream of them to create an affordable market.”
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The Government is setting rates for Company Car Tax until April 2028 to provide long-term certainty for taxpayers and industry in Autumn Finance Bill 2022. Rates will continue to incentivise the uptake of electric vehicles.
Appropriate percentages for electric and ultra-low emission cars emitting less than 75g of CO2 per kilometre will increase by one percentage point in 2025-26; a further one percent in 2026-27 and a further one percent in 2027-28.
This would be up to a maximum appropriate percentage of five percent for electric cars and 21 percent for ultra-low emission cars.
Rates for all other vehicles bands will be increased by one percentage point for 2025-26 up to a maximum appropriate percentage of 37 percent and will then be fixed in 2026-27 and 2027-28.
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Mr Groot continued, saying: “£245million is a lot of money to you or me. But in the context of the tax take it is miniscule. It’s the equivalent of someone who earns £25,000 a year getting a pay rise of £5.”
“Germany has pledged to keep its similar scheme in place until 2030. Doing the same in the UK wouldn’t cost much but would give a lot more certainty to those leasing company cars in the next few years, as these agreements typically last three or four years.”
“On the other hand, we understand the need to introduce some level of VED on electric cars – as we are all driving on the same roads.”
New zero emission cars registered on or after April 1, 2025, will be liable to pay the lowest first year rate of VED (which applies to vehicles with CO2 emissions of between one and 50g/km) which is currently £10 a year.
From the second year of registration onwards, they will move to the standard rate, currently £165 a year. Zero emission cars first registered between April 1, 2017, and March 31, 2025, will also pay the standard rate.
The Expensive Car Supplement exemption for electric vehicles is due to end in 2025. New zero emission cars registered on or after April 1, 2025, will therefore be liable for the expensive car supplement. The Expensive Car Supplement currently applies to cars with a list price exceeding £40,000 for five years.
The Government will also extend the 100 percent First Year Allowance for EV chargepoints to March 31, 2025. This will ensure that the tax system continues to incentivise business investment in charging infrastructure.
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