Electric car tax explained: how much will your EV cost you in tax?

Not too long ago, one of the biggest incentives of buying an EV was a zero rate of Vehicle Excise Duty (VED). However, as of April 2025, all electric cars now attract the base rate of road tax. 

There’s more to taxing an EV than just the VED, too. You also have VAT and potentially BiK or eVED to consider — to name just a few. If you’re confused by these abbreviations, don’t worry because we’re here to explain everything you need to know about electric car tax.

EV tax changes are being implemented at a time when electric cars are steadily becoming mainstream choices for a wide range of people. While the Government continues to ramp up sales targets for EVs ahead of its 2030 ban on the sale of petrol and diesel vehicles, adjustments are being made in order to counteract a potential deficit in the public finances caused by heavily-taxed combustion cars being phased out.

Keep reading to find out more about the different taxes that electric cars are subjected to, and which ones might apply to you.

What taxes do electric cars attract?

Electric cars are now subject to all the same taxes as their combustion counterparts, just at different rates depending on the age of the car, and whether it’s privately owned or being run as a company car.

For private buyers, the most significant tax is Vehicle Excise Duty, also known as VED, car tax, or simply ‘road tax’. This must be paid when a vehicle is first registered, and annually thereafter. Electric vehicles costing more than £50,000 also attract the Expensive Car Supplement (also known as the luxury car tax) which currently stands at £425 annually between years two and six of ownership.

Company buyers will be familiar with Benefit-in-Kind or BiK taxation, and this has applied to EVs for many years, albeit at a much lower rate than for cars with tailpipe CO2 emissions. Finally, all cars, electric or otherwise, are subject to Value Added Tax, or VAT, at the point of sale.

Vehicle Excise Duty

Vehicle Excise Duty (VED), commonly known as road tax, will be familiar to anyone who’s owned a new or used vehicle. It’s an annual fee payable from the moment a car is registered, and every year thereafter when a vehicle is kept on the road. 

That is, unless you bought an electric car, because these have previously been exempt from all VED charges, both at first registration and in subsequent years. From April 2025 that changed, with new rules affecting both new and older EVs.

New electric cars are now subject to a tax charge of £10 in the first year, which will be hardly noticed by most buyers. A tougher pill to swallow is that EVs now also attract the standard annual rate of VED, which currently stands at £195 – not to mention that those costing more than £50,000 are also subject to the expensive car supplement (see below).

If you own an EV registered between 1 April 2017 and 31 March 2025 and have been benefitting from zero road tax, the bad news is now also liable for the £195 standard annual rate. If you have an EV that was registered prior to 31 March 2017, you’ve also lost your zero-rated road tax, but will only have to pay VED at £20 per year.

VED Expensive Car Supplement

As well as getting a free pass on road tax, electric cars were previously exempt from the expensive car supplement. For anyone buying a new EV today, this will be the most significant tax increase they’ll face if their new car costs more than £50,000. For petrol cars, the threshold is set at £40,000 so more drivers pay. 

The luxury car tax supplement now sits at £425 a year and applies for five years from the car’s second birthday, that is years two to six. So EVs that would previously have been free to tax will now cost private buyers £620 per year from year two onwards. This is because they’ll pay the £425 surcharge on top of the standard £195 annual rate.

This is worth bearing in mind for used-car buyers, too. It’s not always easy to find out what the used model you’re buying cost when it was brand new, so it’s worth running a car’s registration through an online car tax calculator to see how much VED might cost in advance.

Owners of EVs registered before April 2025 are at least spared from paying the expensive-car supplement. However, they’ll still have to pay the standard £195 annual rate.

Benefit-in-Kind company car tax

With their employer footing the bill for road tax, the cost company car users are most concerned by is Benefit-in-Kind taxation, abbreviated to BiK. This works out a tax rate based on three factors: the cost of the car, whether you’re a lower or higher-rate taxpayer (i.e. pay tax at the standard 20 per cent rate, or the higher 40 per cent rate of income tax), and a BiK company car tax percentage rate.

This latter figure has been two per cent for EVs for a few years now, but has now increased to three per cent. This obviously means it’ll cost a little more in tax to run a company car, but given this rate is already far lower than for cars with higher CO2 ratings, running an EV as a company car is still incredibly cost-effective. In fact, the difference between a petrol BMW 3 Series and an electric BMW i4, for instance, is measured in the thousands of pounds.

VAT

Most things you buy or services you use in the UK attract Value Added Tax, or VAT, typically at a rate of 20 per cent. If a car costs £20,000 before VAT, then the on-the-road price (ignoring registration costs and other peripheral car-buying expenses) will be £24,000.

Some products and services are exempt from VAT – most food and drink (excluding sweets, alcohol, soft drinks and the like), sports activities, gambling, most healthcare products and education are either exempt or zero rate, while things such as domestic energy and heating products are subject to a much lower five per cent rate.

Electric cars get neither exemption, nor a lower rate, so are currently subject to the full 20 per cent whack, just the same as any other car whatever its power source. However, there is an interesting VAT variation for EV drivers when it comes to charging costs: those drivers with home chargers use ‘domestic’ energy VAT rated at five per cent, while anyone using public charging has to pay the standard 20 per cent VAT rate.

There’s currently a push from within the industry to rate public charging VAT at five per cent, and to reduce VAT on EV purchases to encourage their adoption. Both the SMMT and some car company executives have called for VAT to be halved, cutting the up-front cost of EVs by thousands of pounds (the SMMT estimates around £4,000 on average).

What is eVED pay-per-mile tax?

The Government has announced that it is considering the implementation of a pay-per-mile tax scheme for electric cars. This is designed to recoup some of the tax lost as petrol cars are phased out and drivers stop contributing as much in fuel duty.  

If this scheme does go ahead, it’ll be rolled out no sooner than 2028, and EV drivers would be charged 3 pence for every mile covered. Plug-in hybrids (PHEVs) are also set to be included at a rate of 1.5 pence per mile. For more details about this potential new cost, take a look at our dedicated eVED pay-per-mile road tax guide.

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