One of the more significant announcements contained in Budget 2025 is that electric and plug-in hybrid cars will be subject to a new pay-per-mile tax system from April 2028.
eVED, short for Electric Vehicle Excise Duty, will see drivers of electric cars charged 3 pence for every mile they drive, with drivers of plug-in hybrids (PHEVs) charged 1.5p per mile.
So far, so good, at least theoretically – but how will the system work in practice? Well, HM Treasury has released a consultation document that covers most of the basics.
One point to note is that despite being settled on by government, the name ‘eVED’ is wholly inaccurate, as electric cars are already subject to VED, also known as road tax. eVED is actually replacing fuel duty, which is paid by refiners and collected by forecourt operators, but apparently ‘eDuty’ wasn’t snappy enough.
Why is eVED being introduced?
We have known for some time that two big government policies are economically contradictory: fuel duty on petrol and diesel, which raises around £25bn a year, and the looming ban on sales of new vehicles that run on these fuels. If nothing changes, HMRC will lose about 2% of the UK’s entire tax revenue each year. Enter eVED.
How much eVED will people pay?
The government calculates that each year petrol and diesel drivers cover an average of 8,000 miles and pay £480 via fuel duty. It has decided that despite introducing a new tax for EV drivers it can still encourage people into these cars by setting eVED at “half the equivalent rate” to fuel duty.
This is being facilitated by a charge of 3p per mile for electric cars, although as EVs cover slightly higher mean annual mileages (8,800) than petrol and diesel models, battery motorists will pay £264 a year on average.
Plug-in hybrids, meanwhile will attract a 1.5p per mile rate, for an average annual charge of around £120. Conventional, plugless hybrids will be exempted from eVED.
How will eVED mileages be calculated?
While the Treasury has opened a consultation on how the pay-per-mile will work, the nuts and bolts of the system have already been agreed upon.
Ministers are adamant that “eVED will not require ‘trackers’ in cars”, nor will drivers have to “interact with a whole new tax system”.
Instead, the Driver and Vehicle Licensing agency has been tasked with managing and collecting eVED, with support from the Driver and Vehicle Standards Agency. Broadly speaking, the DVLA administers road tax and the UK’s number-plate database, while the DVSA manages MOTs and vehicle recalls.
Each year, at the same time they pay their conventional road tax, EV and PHEV drivers will estimate how many miles they will cover over the coming 12 months, submit this number online to DVLA, then pay the relevant charge either monthly, bi-annually or annually.
Car dealerships will also offer the ability for those buying new cars to “prepay and bundle eVED mileage into the on-road price of a car”, similar to the current arrangement that exists for first-year road tax payments.
How will eVED mileages be checked?
Cars that are over three years old must have an annual MOT, and during these checks testers will record mileages and submit their readings to DVLA. When drivers next submit their mileage readings for their next eVED payment, it must not be lower than was recorded at the MOT.
Until they require MOTs, newer cars will have to be taken to an MOT station ”around their first and second registration anniversary” to have their mileages verified and inputted by testers into the DVLA database.
There will be no additional charges for mileage verification, regardless of the age of the vehicle.
Could GPS tracking for cars be on the way?
The government promises that it won’t, saying: ”Protecting motorists’ privacy as part of eVED is a priority for the government, so any potential technology-based solutions considered in future will only ever be optional.”
That doesn’t preclude the system becoming more sophisticated over time, though, with ”the development of a fully automated system for payment adjustments and refunds” being considered “in due course”, and the consultation asking “how various types of technologies could be used on an opt-in basis in future to simplify the system and reduce administrative burdens on motorists and businesses.”
Will the 3p per mile rate increase?
Yes. Just as road tax rates rise with inflation, the eVED rate will be ”uprated in 2029-30 and in future years in line with CPI inflation, to ensure that the tax maintains its real-terms value”.
What if people cover fewer or more miles?
Those who cover fewer miles than they expected won’t be issued a refund – instead they will be given a ‘credit’ that will offset their payment for the following year.
People who drive more over the course of the year than they predicted they would will have to pay the difference via “a single balancing payment” made to DVLA.
How will ‘clocked’ cars be detected?
An estimated 2.3% of vehicle odometers have been tampered with, and the Treasury concedes that eVED “may increase the likelihood of motorists choosing to clock their vehicles”.
Drivers who are caught clocking their cars could be see driving become more expensive via “an increased rate in future years”, and new laws could be introduced to crack down on clocking, with the government saying it will take the “necessary legislative, regulatory and technical steps” to ensure eVED compliance. Wheel clamps and vehicle impounding are also being considered.
Notably, modern cars typically record their mileages in multiple electronic systems, making clocking easier to detect than it once was, while car makers, leasing firms and insurers will be consulted to tackle clocking and eVED evasion.
What about when a car is sold?
While road tax is refunded to the vendor with a vehicle is sold, changing the ownership of a car will not result in a refund for eVED. Instead, the mileage “will remain with the vehicle”, and the government expects any excess payments or shortfalls to be “reflected in the sale price of the vehicle.”
Other eVED details
- While people receiving certain state benefits, such as the Disability Living Allowance or Personal Independence Payment, are exempt from road tax, they will not be exempt from eVED.
- It is likely that leasing and fleet companies will be able to make “bulk” eVED payments to streamline the administrative process the new tax will entail.
- Cars being scrapped will have their odometer readings recorded by scrap yards, with this figure being used to corroborate eVED mileage submissions.
