UK Budget 2025: changes afoot for electric vehicles taxes

The announcements were revealed in a policy paper accompanying the UK chancellor’s autumn budget.

The government said it would invest an additional £100m EV charging infrastructure, building on the £400 million of funding announced in the spending review earlier this year to support the installation of EV chargepoints in homes and workplaces across the country.

It also set out plans to extend business rates relief for eligible EV chargepoints and EV-only forecourts over the next decade. The government will also extend the 100% first year allowances for zero emission cars and EV chargepoint infrastructure by a further year and allocate £100m to local authorities and public bodies to help accelerate the roll-out of public charge points.

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The electric car grant, which launched in July, will also receive an additional £1.3 billion in funding and be extended to 2029-30 to help more drivers make the switch to electric. The scheme has already helped more than 35,000 drivers switch to an EV by giving them up to £3,750 off eligible EV models.

In last year’s autumn budget, the government said it would bring employee car ownership schemes (ECOS) into the scope of the benefit-in-kind rules from 6 April 2026. To ease the transition, the government has pledged to introduce a temporary benefit-in-kind easement for plug-in hybrid electric vehicles (PHEVs) “to prevent their tax charge increasing significantly due to new emissions standards” and will delay its implementation to 6 April 2030. Transitional arrangements will also be put into place until April 2031 to provide additional support for drivers still in contract.

Accompanying all of these announcements, the chancellor Rachel Reeves also confirmed during her speech on budget day the introduction of a new pay-per-mile charge for EVs and plug-in hybrids. The charge had already been widely expected following reports published earlier this month.

The new Electric Vehicle Excise Duty (eVED) will require electric car drivers to pay a road charge of 3p per mile from April 2028 in addition to their existing VED. Plug-in hybrid drivers will also be required to pay 1.5p per mile alongside their existing VED. The rates for both types of vehicles are expected to rise each year with inflation.

The new charge is designed to help double the UK’s road maintenance budget. Fuel duty, which is imposed on petrol- and diesel-powered vehicles, currently raises between £24 billion and £25bn for the UK economy each year. However, this figure is set to dwindle as the government phases out these types of vehicles to help the country meet its net zero targets. The sale of new petrol and diesel cars will be prohibited in the UK from 2030.

In its policy paper, the government said “all vehicles contribute to congestion and wear and tear on the roads” and that the charge would act as a “modest self-reported per-mile levy”.

The tax paid by EV drivers will be around half the fuel duty rate paid by drivers of petrol or diesel cars, with plug-in hybrid drivers eligible for a reduced rate. The chancellor also announced that the government will extend the 5p a litre cut in fuel duty until September 2026. It was originally due to expire in March next year.

Tax specialist Penny Simmons of Pinsent Masons said it was “surprising” that the government continued to freeze fuel duty while introducing a tax on electric vehicles in light of its objective to reach net zero carbon emissions by 2050.

Peter Feehan of Pinsent Masons, who specialises in projects concerning the electrification of mobility, added: “Businesses in the EV ecosystem – from original equipment manufacturers to fleet operators – will need to reassess long-term cost models and customer propositions in light of this evolving tax landscape.”

Chris Martin, a technology expert at Pinsent Masons, said the new road pricing scheme for electric vehicles also raises important legal questions around data privacy, proportionality and enforcement. “If mileage tracking becomes a requirement, we could see significant developments in how vehicle data is collected, stored and shared, adding to the already complex data landscape within the EV ecosystem,” he said.

“The UK is making progress on EV data with open data mandates and interoperability standards, but challenges persist around data quality, privacy, cybersecurity, and integration across fragmented systems. The new eVED will result in the collection of new mileage data, which may be used to better understand consumer behaviour. We need to ensure that in collecting and using such data we don’t damage consumer experience, trust and long-term EV adoption.”

Simmons is encouraged by the government’s move to publish a consultation to seek views on how exactly the eVED will work and be implemented in practice. “Any new tax should be simple to understand and apply and continue to support the shift to cleaner transport, whilst ensuring the costs of maintaining our roads are shared equitably,” she added. “This means coupling any new charges with continued investment in EV infrastructure and incentives and addressing the broader issue of road pricing.” The consultation closes on 18 March 2026.

Other vehicle types, such as vans, buses, motorcycles, coaches and HGVs, where the transition to electric power in the UK is much less advanced, will be out of scope of eVED when it comes into effect in 2028.

Although the announcements have raised some concerns that consumers will be put off buying electric vehicles, the government said it would also increase the threshold at which motorists with new EVs have to pay the VED Expensive Car Supplement. From 1 April 2026, this will rise from £40,000 to £50,000, and is expected to save over a million motorists £440 per year.