Chancellor confirms pay-per-mile tax for EVs but raises Expensive Car Supplement

IN Budget 2025 (26 November) Chancellor Rachel Reeves announced that electric vehicles (EVs) would be taxed with a new "pay-per-mile" system.

The pay-per-mile tax will not be implemented until 2028 and will cost 3p for EVs and 1.5p for plug-in hybrids (PHEVs).

Called Electric Vehicle Excise Duty (eVED), drivers will be required to estimate their annual mileage and pay this charge on top of the standard Vehicle Excise Duty (Road Tax) starting from April 2028. Discrepancies in mileage will be adjusted in the following year's payment.

The eVED announcement is out for consultation. The consultation can be found here: Consultation on the Introduction of Electric Vehicle Excise Duty (eVED).

For an EV driver covering 8,500 miles a year, this adds approximately £255 to annual running costs.

“The introduction of eVED will certainly add to the running costs of electric cars, but they remain a significantly cheaper way to operate a company car or to drive a car under a salary sacrifice scheme,” said Operations Director, Rob Marshall.

“Against this increase, the Chancellor also announced a rise in the Expensive Car Supplement - raising the bar from £40,000 to £50,000 which will be a significant win for many drivers and businesses choosing their next company car.”

How the new Expensive Car Supplement works

• Current rule: Cars with a list price in excess of £40,000 pay an extra £425 per year in road tax from years 2-6.
• New rule: From April 2026, the threshold for EVs will rise to £50,000.

“Many popular EVs sit between £40,000 and £50,000,” added Rob. “Removing this surcharge reduces the overall cost of ownership for fleets and businesses, which should translate to lower monthly lease rates for these models.”

Other changes to motoring

Fuel Duty changes for petrol and diesel cars

Fuel duty has been frozen at current levels until September 2026, when it will rise in increments. The 5p-per-litre cut (introduced in 2022) will be reversed in a "staggered approach" starting after September 2026. From April 2027, fuel duty will increase in line with RPI inflation.

Electric Car Grant extended plus infrastructure boost

The Electric Car Grant for qualifying cars has been extended to 2030, with an additional £1.3bn in funding to encourage uptake.

In addition, an extra £200m has been pledged to accelerate the rollout of public EV charge points, while the 100% First Year Allowance for businesses installing EV charging infrastructure is extended, supporting fleet operators who charge at work.

“Overall, there’s a lot of positive news for fleets and personal drivers choosing an electric car,” commented Rob.

“While the new eVED will grab the headlines, overall the Budget is fairly balanced for EVs. However, for higher mileage drivers in diesel cars and vans, the rise in fuel duty will require rethinking over costs and whether a swap to one of the latest, longer range EVs might be more suitable.”