5:09 pm, November 17, 2022
After any budget announcement there is always a great deal of hand-wringing from those who are suddenly being taxed more, or feel that incentives don’t go far enough.
This time, it is the turn of electric car drivers like me.
The chancellor stood up today and said that the zero rate for road tax on electric cars is going to end. In addition, benefit-in-kind rates for company car drivers making the switch are going to rise 1% per year from 2025.
There are concerns, of course, but generally the reaction from electric car drivers across social media has been much less angry than expected.
Drivers seem to acknowledge that the change was inevitable as electric cars became more popular and the hole in the government’s finances became bigger.
Battery electric vehicles have accounted for 14.6 per cent of the total new car sales so far this year, outstripping the demand for diesel.
The share is growing fast, with registrations up nearly 40 per cent this year, meaning there are now more than a million plug-in vehicles on British roads. That’s a lot of tax to give away for free.
There was also a lot of pressure to clarify the company car BIK levels to allow businesses and employees to make informed decisions about vehicles which are being ordered now and will be kept for three or four years on a typical lease cycle.
The 1% rise per year seems remarkably reasonable and will give drivers the confidence to order a new company car, or a salary sacrifice lease.
However, there have been some devils hidden in the detail which suggest the finer points of the plans have been rushed.
Details published by the Treasury after the chancellor sat down show that electric car drivers will pay £165 per year from 2025, which is expected and fair.
However, the charge will also be imposed on cars which were first registered between April 2017 and the end of March 2025.
That means owners of eight-year-old EVs will suddenly find themselves facing an extra bill.
I can’t think of another example of when cars have had a retrospective tax applied to them when they were originally sold as having zero road tax.
For the trade, this is likely to cause a residual value ‘cliff’, with cars registered before April 2017 being worth more than those after, in the same way a big-engined car registered before April 2006 can be worth hundreds more than a newer car which is subject to the killer £605 road tax rate.
But while the buyers of those gas-guzzlers knew when they bought the car new, the poor owner of a late 2017 Nissan Leaf can’t have known their car is now going to be worth less than the same model which is a few months older.
There will be a charge for even older electric cars too – any EV sold between March 2001 and 2017 will be forced to pay, but the £20 a year charge is unlikely to cause a stir. Electric van users might grumble though – they will move to the same rate paid by petrol and diesel light goods vehicles, currently £290 a year.
More worrying is the Expensive Car Supplement – nicknamed the ‘Tesla Tax’ – which causes such confusion currently.
Any dealer who has tried to explain to a customer the workings of this scheme will realise the headaches this will cause. It’s currently not applied to electric vehicles.
But any electric cars registered after 1 April 2025 will now be liable for the supplement, which today applies to cars with a list price exceeding £40,000. It will add an amount (for 2002 it is £355 per year) to the road tax bill for five years. As EVs are generally more expensive, it will ensnare drivers of cars as mainstream as a Kia Niro EV.
Unlike the taxes on beer and cigarettes, these changes aren’t due to be imposed for another two-and-bit years.
That is a long time in politics, so there is still time to rethink the details and iron out the wrinkles. But at least we have an idea of the direction we are headed…
Tom Barnard is the editor of Electrifying.com
