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The current exemption for EVs from Vehicle Excise Duty will be abolished from 2025, Chancellor of the Exchequer Jeremy Hunt has announced.
Delivering his Autumn Statement today, Hunt also announced that BIK company car tax rates for EVs would rise by 1% per year for three years from 2025.
Hunt said: "Because the Office for Budget Responsibility forecast half of all new vehicles will be electric by 2025, to make our motoring tax system fairer I have decided that from then, electric vehicles will no longer be exempt from Vehicle Excise Duty.
"Company car tax rates will remain lower for electric vehicles, and I have listened to industry bodies and will limit rate increases to one percentage point a year for three years from 2025."
According to Treasury documents published with the statement, the VED reforms will see new zero-emission cars registered on or after 1 April 2025 liable to pay the lowest first year rate of VED, 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 1 April 2017 and 31 March 2025 will also pay the standard rate.
2025 will also see the end of the Expensive Car Supplement exemption for EVs, which currently applies to cars with a list price exceeding £40,000 for five years - new zero-emission cars registered on or after 1 April 2025 will become eligible.
Zero and low-emission cars first registered between 1 March 2001 and 30 March 2017 currently in Band A will move to the Band B rate, currently £20 a year.
Rates for alternative fuel vehicles and hybrids will also be equalised.
As well as the EV Company Car Tax announcement, the Treasury has also confirmed BIK rates for low-emission cars emitting less than 75g/km of CO2 will rise at the same rate, to a maximum of 21%
The rates for other cars will increase by 1% for 2025-26, to a maximum of 37%, and will then be fixed for the following two years.
The Treasury has also announced that legislation will be brought in to extend the 100% first year allowance for EV chargepoints to 31 March 2025 for corporation tax purposes, and 5 April 2025 for income tax purposes.
Also, fuel benefit charges will increase in line with CPI from 6 April 2023.
Giving his reaction to the Chancellor's statement, BVRLA chief executive Gerry Keaney welcomed the decision to keep electric company car tax rates low.
He said: "Today marks a key milestone in the UK's transition to zero emission motoring and cements the momentum we have gathered in recent years. Our sector is the driving force behind getting cleaner, greener vehicles on UK roads, with the tax regime a critical lever in making it happen.
"Our #SeeTheBenefit campaign had clear asks around keeping rates low and giving drivers confidence in future rates. The government has listened. We have engaged with MPs, the Treasury and the Chancellor directly, with our voice bolstered by input and letters from thousands of BVRLA members and industry professionals.
"Benefit in Kind rates remaining fair, alongside the clarity provided by years of foresight, gives us a clear path on the road to net zero. The long-term health of the market has been boosted by today's announcement."
AFP chair Paul Hollick said: "We have been strongly expressing that the position of EVs in the UK fleet sector remains at a relatively early stage of adoption and the increases in company car taxation, of 1% per cent year, seems well-judged to us at first glance.
"Crucially, they will allow fleet decision makers to plan for the second half of the decade as they continue the process of electrification. This is something for which we have been campaigning in conjunction with BVRLA and it is to be welcomed.
"Against this backdrop, the VED equalisation with ICE - something that will apply to the vast majority of EVs from 2025-26 - is disappointing but perhaps not unexpected. It does feel a little as though the government has given with one hand and taken some back with the other."
Giving his reaction to the company car tax announcement, Lex Autolease head of fleet consultancy Ashley Barnett said: "The publication of company car rates beyond 2025 reaffirms the government's commitment towards a greener future and gives decision makers the clarity they need to accelerate their transition towards EVs.
"Fleet replacements typically operate in four-year-cycles and today's announcement paves the way for future purchasing decisions - giving them the confidence they need to commit to a long-term sustainability plan.
"With longer lead times from manufacturers delaying the delivery of many vehicles, having clarity beyond 2025 is a major boost for future electric fleet decision making."
On the subject of the EV VED decision, Barnett was more equivocal.
He said: "The electric vehicle market has grown exponentially in recent years, creating a shortfall in motoring tax revenue. However, when coupled with rising vehicle and electricity prices, we must remain cautious of introducing further barriers to adoption.
"The introduction of VED on EVs won't immediately stall future uptake, but it does highlight the need for a more coherent and joined up conversation between government departments and industry bodies to simplify what is becoming an overly complicated vehicle taxation system.
"Vehicle Excise Duty must operate in a fair, emissions-based way if we are going to continue to clean up the older and more polluting vehicles on the UK's roads."
Giving a more critical reaction, Sogo Mobility managing director Karl Howkins said: "On the road to net zero, we have come a long way in a short period of time. However, we shouldn't take this progress for granted, and the momentum is fragile.
"We already have anecdotal evidence that the rise in electricity prices is slowing demand for EVs, and the Chancellor's decision to introduce vehicle road tax for EVs in 2025 and [implement] increases to company car tax can only serve to further dampen demand.
"We are doing our bit by providing flexible access to green mobility for businesses and private motorists. I'd like to see the government double down on the transition to net zero with more investment in charging infrastructure and greater tax breaks to boost the adoption of EVs."
Giving a manufacturer reaction, Ford UK chairman Tim Slatter was also critical.
He said: "Today's announcement by the government to impose VED for electric vehicles from 2025 is a short-sighted move.
"We are still many years from the 'tipping point' when electric vehicles will reach cost parity with petrol and diesel vehicles. Until then, we should be incentivising customers to make the greener choice."
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