Electric cars and road tax
One of the least enjoyable parts of motoring in the UK is paying road tax, or Vehicle Excise Duty (VED) as it’s officially known. Road tax is based on tailpipe emissions, specifically carbon-dioxide (CO2) emissions. The more your car pollutes, the more you have to pay.
On 1 April 2017, the Department for Transport overhauled the UK’s road-tax system, bringing in higher rates for more polluting and more expensive vehicles, and making it tougher for drivers of less polluting cars to avoid paying tax. However, there are some exceptions and reductions, applying to both electric and hybrid cars.
Road tax for vehicles registered after 1 April 2017
Under the previous road-tax regime, any car emitting under 100g/km CO2 was exempt from VED. Thanks to improvements in fuel economy and reductions in tailpipe emissions, an increasing number of new cars were becoming tax-exempt, which didn’t bode well for HM Treasury's coffers.
So the Department for Transport introduced new rates. These include a first-year payment, which varies depending on a car's CO2 emissions, plus a flat fee for all subsequent years. Now, only pure-electric and hydrogen fuel-cell vehicles are completely tax-exempt, while owners of hybrids registered since 1 April 2017 have to pay road tax. The first-year payment is usually rolled into the 'on-the-road' price for a new car, while the flat annual fee stands at £145 for purely internal-combustion-engined cars and £135 a year for 'alternatively fuelled vehicles' – a government categorisation that covers all types of hybrids, including plug-in hybrids (PHEVs).
There is, however, another catch with the latest VED rates. The owner of a car with a list price more than £40,000 (regardless of emissions) has to pay an extra £320 a year the first five times they tax the car. So owners of something like a Tesla Model S, which is zero-emissions but costs more than £40,000, have to pay £320 a year for five years. The fee stays with the car, so anyone purchasing a used Model S that was first registered after 1 April 2017 still has to make the payments.
Road tax for vehicles registered between 1 March 2001 and 31 March 2017
Cars registered between 1 March 2001 and 31 March 2017 fall under a different tax system, which heavily favours electric vehicles and hybrids. Crucially, there are also no flat fees, with owners of cars that pollute less paying little every year. If you’re looking at used electric or hybrid cars, it’s worth checking whether it was first registered before 31 March 2017, as these cars are fully tax-exempt, as long as they emit less than 100g/km of CO2.
Will electric-car owners have to pay road tax in the future?
While pure-electric vehicles are currently tax-exempt (if they cost below £40,000), this may not continue forever. For one, as more cars become electric, the government loses more and more in fuel duty. Currently, the government makes around £28 billion a year from the 57.95p per litre of fuel duty added to petrol and diesel.
To make up for the shortfall in the future, several proposals have already been made. One is to introduce road pricing, where vehicles will be charged for the miles they drive. As cars become more connected, where they're able to communicate with one other and roadside infrastructure, one of the ideas that has been mooted by think tanks is to charge owners a fee for each mile driven. Although the Government has taken no official stance on this yet, it has said it’s investigating alternatives for fuel duty in the future.