The latest tax rules for electric vehicles make the prospect of buying one less attractive than several years ago. In this article, we discuss the key changes to consider before rushing off to the nearest Tesla centre!
Overview
With the increased adoption of electric vehicles ('EV's'') in recent years it's inevitable that changes would be introduced. The objective of those changes being to create a fairer road taxation system across all vehicle types and fund road maintenance.
Vehicle Excise Duty
For many years, one of many perks of driving an EV was not paying any Vehicle Excise Duty ('VED'). However, this changed on 1 April 2025, when the government removed the zero-rate exemption for EVs.
This is part of a wider government policy to ensure that EV's are taxed in the same way as petrol and diesel cars. Although, this may prove one of many barriers to someone contemplating the purchase of a new or second hand EV.
How much will EV owners pay?
Where you buy a new electric car after April 2025, you pay the standard annual VED rate - this is currently £190 per year. However, when the car’s list price is over £40,000, there's an expensive car supplement of £410 per year. What's more, this additional charge is applied for five years after registration.
However, for those EVs registered between 1 April 2017 and 31 March 2025, the first year’s tax will be a reduced £10. Subsequently, it increases to the standard £190 rate from the second year onward.
Consequently, this change increases annual costs for electric vehicle drivers. Although it still may be cheaper than the annual fuel and maintenance costs of a petrol or diesel car. Especially if you have access to home/workplace charging facilities for your EV.
Grants for EV purchases
The government continues to support EV adoption via direct purchase incentives. Under the Electric Car Grant (ECG), buyers receive up to £3,750 off the price of a new, eligible EV. However, this grant applies only to cars meeting specific criteria on emissions, price caps, and sustainability standards.
Crucially, you don't apply for the grant yourself. Instead, the discount is applied automatically at the dealership at the point of sale. Consequently, the dealer claims the grant directly from the government. This means the purchase price factors in a reduction for the grant received.
Eligibility depends on the vehicle being listed on the government’s approved register. Therefore, not all electric cars qualify. Additionally, the grant focuses on more affordable models, ensuring public funds support wider EV adoption instead of premium vehicles. Furthermore, the latest tax rules for electric vehicles indicate grants may be altered or reduced with more widescale adoption of EV's.
Therefore, if you're considering buying a new electric car, always check current qualifying criteria here, as grant eligibility could change at short notice.
Company Car and Van Tax for EV's
Electric cars remain relatively tax-efficient when used as company cars. However, some of those tax advantages are gradually being eroded.
Broadly speaking, the fixed percentage applied to a car's brand new list price is used to calculate the Benefit-in-Kind ('BIK') on your company car. As a result, the BIK ultimately determines how much tax you pay on your company car.
For electric vehicles, the BiK fixed percentage has been held at 2% since the 2022/23 tax year. Conversely, the rate is much higher for petrol and diesel equivalents.
What's changing?
From April 2026, that current fixed 2% rate will gradually rise as follows:
However, this still compares favourably to petrol or diesel company cars, which can attract BIK rates of up to 37%, depending on their emissions.
What about electric vans?
The BIK rate for company electric vans continues to be 0% - until at least 5 April 2028. Additionally, this rate applies where electric vans are used privately as well as for work.
Capital Allowances - EV's and charging points
Capital allowances remain one of the most valuable reliefs available under the latest tax rules for electric vehicles. They allow you to offset the cost of EVs and related infrastructure against your taxable profits.
EV's
Capital allowances of 100% can be claimed on the purchase cost of an EV are subject to the following conditions:
EV charging points
Similarly you can claim 100% capital allowances on the purchase cost of an EV charging point. Furthermore, this can include alteration of land for installation and any modification costs to supply electricity to the charging point.
In both cases, relief for this expenditure has been extended to 31 March 2027 for corporation tax and 5 April 2027 for income tax.
Mileage allowances and reimbursement of EV charging costs
In terms of reimbursement of charging costs for business miles the position is as follows:
Pay-Per-Mile Road Charging: What’s Coming Next
As more people switch to EV's, the government faces a major issue: lost fuel duty revenue. Petrol and diesel sales currently generate over £30 billion per year in tax. However as more drivers plug in rather than fill up, that revenue will diminish.
As a result the Treasury is exploring a pay-per-mile road pricing system. Drivers will pay for their mileage on a per-mile basis alongside their existing Vehicle Excise Duty. A consultation has been published providing further detail on how eVED will work. Additionally it seeks views on its implementation. The consultation will remain open until 18 March 2026.
Early proposals suggest charges might vary depending on vehicle type, weight, and even time of day (e.g. peak hours). Additionally, the system could be monitored via GPS or road cameras, plus it might replace or run alongside VED in the future.
The intention would be to plug the budget gap, though simultaneously reduce congestion and encourage more efficient use of the road network.
Summary
The latest tax rules for electric vehicles represent a shift in how the government intends to support and regulate the EV sector.
Incentives are still available, but they’re narrowing. The emphasis is moving from encouragement to fairness, as electric cars become the norm rather than the exception.
EV ownership may still be cheaper than petrol or diesel long term — though only if you plan ahead. Furthermore, you must now factor in VED, BIK changes, and potential road pricing when making financial decisions.
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