Electric Vehicles to Face Pay-Per-Mile Tax
- TBA
- 4 days ago
- 4 min read
Following Chancellor Rachel Reeves's announcement in the 2025 Autumn Budget, a new 'pay-per-mile' tax system is set to be introduced for electric vehicles (EVs) and select plug-in hybrid electric vehicles (PHEVs).
From April 2028, pure EV owners will be subject to a road charge of 3 pence per mile, while PHEV drivers will pay 1.5 pence per mile, with this rate increasing annually in line with inflation.
The New 'Pay-Per-Mile' Tax System for EVs
Under the upcoming regulations, EV owners will pay road charges based directly on their mileage from April 2028.
To put this into perspective, a driver covering 8,500 miles a year can expect to pay roughly £255 annually. This equates to about half the fuel duty burden currently borne by traditional petrol or diesel car owners.
The government argues this is a necessary step towards a 'fairer' taxation system.
Because EVs do not consume petrol or diesel, the current fuel duty framework misses this growing segment of motorists, creating a tax revenue shortfall that this new levy aims to bridge.
Importantly, this tax applies exclusively to EVs registered in the UK, regardless of where they are driven abroad. Conversely, foreign-registered EVs driving on UK roads will remain exempt from this specific charge.
How Will the Charges Be Enforced?
The 'pay-per-mile' charge will be integrated into the existing Vehicle Excise Duty (VED) framework, centrally managed and collected by the Driver and Vehicle Licensing Agency (DVLA).
Mileage will generally be verified once a year during the mandatory MOT test, while new vehicles may undergo a mileage check on the first anniversary of their registration. Naturally, this system relies heavily on odometer readings, raising concerns about potential tampering or 'clocking'.
Regulatory bodies are already aware that this new tax could incentivise such illicit practices and are actively exploring preventative measures.
It is worth noting that these charging standards are currently still in the policy planning phase.
The government is holding public consultations, meaning the specific implementation details have yet to be finalised and remain subject to official legislation.
The Gradual Increase in Electric Vehicle Tax Burdens
The reality is that the 'tax-free' honeymoon period for EVs is steadily drawing to a close. While early adopters enjoyed significant tax incentives, the overall running costs for EVs will slowly align with those of internal combustion engine vehicles over the coming years.
Since April 2025, the UK has scrapped the VED exemption for EVs, requiring owners to pay road tax just like traditional motorists. Once the mileage tax comes into force, EV drivers will be hit with both charges simultaneously, further adding to their running costs.
Here is a breakdown of the increasing burdens:
Vehicle Excise Duty (VED): As of April 2025, EVs fall under the standard VED system. Owners pay £10 for the first year, which then rises to £195 annually from year two.
Expensive Car Supplement: For premium EVs (the threshold for which rose to £50,000 in April 2026), owners face an additional annual surcharge of £440.
Congestion Charge: As of 2026, EVs are no longer exempt from the London Congestion Charge.
Meanwhile, drivers of petrol and diesel cars are experiencing a temporary reprieve. The government has extended the 5 pence per litre fuel duty cut until September 2026, after which it will gradually be reinstated and tied to inflation.
Will the New Tax Affect the Appeal of Electric Vehicles?
The UK's EV market has seen rapid growth, with pure EVs now making up around 23% of new car sales, meaning one in four new cars sold is electric. However, corporate fleets and businesses account for roughly 75% of these purchases, largely driven by corporate tax reliefs and 'salary sacrifice' schemes. Genuine private buyers make up only about 25% of the market.
As the new tax system rolls out and the lifetime running costs of EVs increase, industry experts are concerned this could dampen consumer enthusiasm.
So, what are the true costs of buying and running an EV today?
Purchase costs The UK government still offers a plug-in car grant, providing up to £3,750 for models priced under £37,000, and related financial support is continuously evolving. Despite this, the high upfront price of EVs remains a significant barrier for many consumers looking to make the switch.
Running costs Day-to-day, EVs are generally more cost-effective, particularly for those who can charge at home. Domestic electricity benefits from a reduced VAT rate of 5%, keeping charging costs relatively low. However, relying on public charging networks incurs a 20% VAT rate, with prices varying wildly. In some cases, using 'ultra-rapid' public chargers can even prove more expensive than filling up a petrol or diesel car.
Maintenance costs EVs have fewer moving parts than traditional vehicles, making routine maintenance notably cheaper, which remains one of their major selling points.
Despite these benefits, public charging infrastructure remains a sticking point for hesitant drivers. While the UK network is growing (currently boasting around 87,000 public charge points), distribution is heavily skewed. Nearly 43% of these points are clustered in London and the South East, leaving other regions and key motorway routes underserved.
To address this, the government is injecting a further £200 million to accelerate the rollout of charging infrastructure, with a target of reaching 300,000 charge points by 2030.
The View from TB Accountants
Overall, the UK's approach to electric vehicles is shifting from early-stage strong incentives towards a stronger regulatory approach.
While the government continues to encourage EV adoption through infrastructure investments and purchase grants, it is simultaneously using taxation and charging mechanisms to plug revenue gaps and fund the transport network.
As comprehensive tax exemptions become a thing of the past, high-mileage EV drivers will inevitably shoulder a heavier financial burden.
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