The Government’s drive towards net zero has accelerated the adoption of electric vehicles (EVs) across the UK. For several years, zero-emission cars benefited from favourable tax treatment, including exemption from Vehicle Excise Duty (VED). However, as electric vehicles become more common, the tax landscape is shifting.
Since April 2025, electric cars have no longer qualified for free road tax, and we are now well into 2026 with EV drivers fully within the VED regime. As the system beds in and further reforms are proposed, it is important for both individuals and business owners to understand the current position and what may come next
VED for electric cars in 2026
For most electric cars first registered on or after 1 April 2017, the standard annual VED rate in 2026 is expected to be £200 (up from £195 in 2025). In the first year after registration, the charge is £10
This represents a clear policy shift. Electric vehicles are no longer treated differently from their petrol and diesel counterparts when it comes to ongoing road tax. For many drivers, this may be the first time they have had to budget for an annual VED charge on a zero-emission vehicle.
While £200 per year may not materially alter the overall cost-benefit of driving electric, it does form part of a broader trend: the gradual alignment of EV taxation with conventional vehicles as the market matures.
The Expensive Car Supplement
Electric vehicles are also subject to the Expensive Car Supplement. For EVs with a list price (on-the-road price) over £50,000, an additional £425 per year applies from the second year of registration. This brings the total annual VED to £620 under current rates
Notably, the threshold for non-electric vehicles is £40,000. The higher £50,000 threshold for electric cars reflects the historically higher purchase cost of EVs, although price gaps are narrowing.
For owner-managed businesses and directors choosing company cars, this supplement can materially affect total running costs. When selecting higher-specification electric vehicles, it is important to factor in the additional VED exposure over the supplement period.
Looking ahead: mileage-based charging (eVED)
Further change is on the horizon. The Government has indicated that from April 2028 it intends to introduce a mileage-based charge for electric and plug-in hybrid vehicles, sometimes referred to as “eVED”
Under current proposals:
- Electric cars would be charged 3p per mile.
- Plug-in hybrid cars would be charged 1.5p per mile.
The 3p rate is broadly half the current average fuel duty charge per mile for petrol and diesel vehicles
The consultation outlines a system where drivers estimate their annual mileage, pay an upfront amount (or spread payments across the year), and then reconcile against actual mileage at year end. Mileage could potentially be verified using MOT data for vehicles over three years old, although the practical detail for newer vehicles remains to be clarified
If implemented as proposed, this would represent a structural change in how road usage is taxed. Rather than a flat annual charge, tax would become more directly linked to vehicle use.
Strategic considerations for businesses and individuals
For business owners and directors, the shift in EV taxation should be considered alongside:
- Benefit-in-kind (BIK) rates for company cars
- Corporation tax relief on capital allowances
- Salary sacrifice arrangements
- Overall fleet strategy
Although electric vehicles still benefit from favourable BIK treatment compared to petrol and diesel cars, the narrowing of VED advantages and the potential introduction of mileage-based charging will gradually reshape the total cost equation.
For sole traders and landlords operating through limited companies, vehicle choice decisions should now be modelled over a multi-year horizon. An electric vehicle may still deliver tax efficiency, but assumptions based on historic exemptions are no longer valid.
For private individuals, the key is awareness and budgeting. The era of “free road tax” for EVs has ended. While the additional cost may be modest in isolation, it contributes to the broader cost of ownership and should be factored into purchasing decisions.
Planning ahead
Tax policy is evolving in response to behavioural change. As more drivers move to electric vehicles, the Exchequer must replace declining fuel duty revenues. The introduction of VED for EVs in 2025 and the potential mileage-based system from 2028 demonstrate a clear direction of travel
The detail may still evolve, particularly around mileage verification and administrative processes. However, the principle is established: electric vehicles are now firmly within the mainstream tax system.
At bk plus, we work with business owners and directors to ensure vehicle decisions align with wider tax planning, cash flow and commercial objectives. If you are reviewing your vehicle strategy or considering an electric car purchase, speak to your usual bk plus contact for tailored advice.