The way electric vehicle drivers are taxed in the UK is set to change significantly from 2028, with the introduction of a new Electric Vehicle Excise Duty (eVED) system. The new electric vehicle pay-per-mile tax will introduce a mileage-based charge for electric cars, hydrogen fuel cell vehicles and plug-in hybrids.
The government has confirmed that the new charge will come into effect on 1 April 2028 and will introduce a mileage-based tax for electric cars, hydrogen fuel cell vehicles and plug-in hybrids. The implications could be particularly significant for businesses operating electric fleets.
The move represents another step in the UK’s transition away from traditional petrol and diesel vehicles. Alongside eVED, the ZEV Mandate is another major government policy influencing the vehicle market and encouraging manufacturers to increase the proportion of zero-emission vehicles they sell.
For businesses and private motorists considering an electric vehicle, understanding how eVED will work is becoming an increasingly important part of calculating the long-term cost of running or leasing an EV. It’s also worth understanding what driving an electric or hydrogen vehicle involves before making the switch.
How Much Will The Electric Vehicle Pay Per Mile Tax Cost?
The amount payable under eVED will depend on the type of vehicle.
From April 2028, the proposed rates are:
- Battery electric vehicles: 3.0p per mile
- Hydrogen fuel cell vehicles: 3.0p per mile
- Plug-in hybrid vehicles: 1.5p per mile
The lower rate for plug-in hybrids reflects the fact that these vehicles can also use petrol or diesel and therefore their drivers already contribute towards fuel duty when using their combustion engine. Plug-in hybrids occupy an increasingly complicated position within the UK tax system, with changes affecting both their running costs and company car taxation. Our guide to PHEVs and BIK looks at this changing landscape in more detail.
Importantly, these aren’t intended to remain fixed rates indefinitely. The government plans to increase the charges annually in line with inflation.
That means the actual cost of eVED is likely to rise over the lifetime of a vehicle.
For higher-mileage motorists and businesses running vehicles extensively, the number of miles covered each year could therefore have a noticeable impact on the overall cost of going electric.
How Will The Government Calculate Your Mileage?
Rather than requiring drivers to make monthly payments, the proposed system is designed to allow motorists to pay their eVED liability in advance.
Drivers will provide an estimate of the mileage they expect to cover during the year and make their payment based on that figure.
The mileage declared would then be checked against subsequent mileage records.
For example, if you estimated that you would drive 10,000 miles during the year but actually covered 12,000 miles, you would need to pay the additional amount due on the extra 2,000 miles. This is a different system from the excess mileage charges that can apply to some vehicle leasing agreements, although both demonstrate why accurate mileage estimates are important.
On the other hand, motorists who overestimate their mileage would not simply lose the difference. Any unused credit would be carried forward and could be used against their future eVED liability. This mileage-based charge should also be considered separately from HMRC mileage reimbursement rates, which determine how businesses can reimburse employees who use their vehicles for business travel. The two systems serve different purposes, but both make accurate mileage records particularly important for businesses and their drivers.
This means getting your estimated annual mileage reasonably close to your actual usage could become important, particularly for drivers who are already familiar with how lease mileage allowances work.
eVED Will Be Linked To The Vehicle
One interesting feature of the proposed system is that eVED will be associated with the vehicle itself rather than simply the individual owner.
This could have implications when electric or plug-in hybrid vehicles are bought and sold.
The government has suggested that the way eVED operates could eventually become a consideration in the used vehicle market, with prospective buyers potentially taking the vehicle’s tax position into account when making a purchasing decision.
For businesses regularly changing vehicles, this could also become another factor to consider when assessing the overall cost of ownership and disposal.
Could Your Vehicle’s Technology Automatically Record Mileage?
One area that is still being considered is how mileage could be collected in the future.
Modern electric and plug-in hybrid vehicles are increasingly connected, and many already feature sophisticated telematics and connected vehicle technology.
There has been discussion about whether this technology could eventually be used to provide mileage information for eVED.
In theory, this could create a much more automated system, with the vehicle providing an accurate record of the miles driven and allowing the appropriate charge to be calculated.
However, this is not currently a mandatory requirement.
The government has indicated that protecting motorists’ privacy is an important consideration and that any future technology-based approach would be optional.
This means drivers should not assume that they will be required to hand over continuous vehicle location or mileage data simply because they own an EV or plug-in hybrid.
Is eVED Replacing Normal Vehicle Tax?
No.
Despite its name, eVED is not intended to replace standard Vehicle Excise Duty (VED).
Instead, it will sit alongside the existing vehicle taxation system.
For eligible electric vehicles, this means motorists could effectively face two separate forms of taxation: conventional VED and the new mileage-based eVED charge.
The rationale behind eVED is to replace some of the tax revenue that the government currently receives through fuel duty.
As electric vehicles don’t use petrol or diesel, drivers don’t contribute to fuel duty when travelling using electric power. As EV adoption increases, the government therefore needs a different way of generating revenue from road users.
The introduction of eVED is intended to address that changing tax landscape.
What Happens With Brand-New Electric Cars?
There is a practical issue with using MOT records to verify mileage.
Most new cars don’t require their first MOT until they have been on the road for three years. That creates a gap for the government because there would be no standard MOT mileage reading during the early part of the vehicle’s life.
To address this, the government has proposed additional mileage checks during the first and second years.
These checks could potentially be carried out by an accredited provider, with vehicle dealerships being one possible location for the checks when a car is brought in for servicing.
The exact process is still subject to further development.
For businesses operating fleets of newer EVs, this could mean keeping accurate mileage records and ensuring vehicles are available for any required checks becomes an additional administrative consideration.
What About Electric Cars Driven Outside The UK?
Another potential complication concerns vehicles that regularly travel overseas.
The proposed system does not currently provide a straightforward mechanism for deducting mileage accumulated outside the UK.
In theory, a UK-registered electric vehicle shouldn’t necessarily incur a UK road-use charge for every mile it travels abroad.
However, introducing a system capable of accurately identifying and removing overseas mileage would add another layer of complexity and could raise privacy concerns.
The government’s position is that relatively few UK-registered cars spend significant amounts of time driving abroad, meaning it intends to prioritise a simpler system rather than introduce extensive mileage monitoring.
This could nevertheless create difficulties for motorists who live close to the UK border.
Northern Ireland provides a particularly obvious example. Someone living close to the border with the Republic of Ireland could regularly drive significant distances on Irish roads while still having a UK-registered vehicle.
How these situations will ultimately be dealt with remains an area to watch as the scheme develops.
What Does eVED Mean For Electric Vehicle Drivers?
The introduction of eVED changes the financial argument surrounding electric vehicles.
For several years, one of the attractions of switching to an EV has been the potential to reduce running costs through lower energy costs and favourable taxation.
That advantage isn’t disappearing completely, but it is changing.
Electric vehicles have already moved into the standard vehicle taxation system, and from 2028 drivers will also face a mileage-based charge when using their vehicles.
The government maintains that electric vehicle drivers will still pay less per mile through eVED than the fuel duty contribution made by the average petrol or diesel motorist.
However, the difference between the two is likely to become increasingly important for high-mileage drivers.
Someone covering relatively few miles each year may see only a modest additional cost, whereas a vehicle covering tens of thousands of miles could accumulate a considerably larger eVED bill.
eVED isn’t the only change affecting the cost of electric motoring. Drivers should also be aware that EV exemptions and discounts for other road charges are changing, depending on where they drive.
What Could eVED Mean For EV Leasing?
For anyone considering an electric vehicle lease, eVED is another cost that needs to be factored into the overall decision. There are still plenty of reasons to consider an EV, and our guide to leasing an electric vehicle looks at some of the wider benefits and considerations.
This is particularly relevant to businesses because commercial users can cover significantly higher annual mileages than the average private motorist. Despite the introduction of eVED, there are still potential financial and environmental benefits associated with electric fleets.
When comparing an electric vehicle with a petrol, diesel or hybrid alternative, it will become increasingly important to look beyond the advertised monthly lease payment.
For larger businesses, this forms part of the wider process of fleet lifecycle management, where acquisition costs, running costs, taxation, maintenance and vehicle replacement are considered over the entire life of a vehicle.
Factors such as:
- Annual mileage
- Electricity costs
- Fuel costs
- Vehicle taxation
- eVED
- Insurance
- Maintenance
- Charging requirements
- Vehicle downtime
- Residual values
can all contribute to the real-world cost of running a vehicle.
Tax isn’t the only financial consideration for businesses. Depending on how a vehicle is used, VAT recovery on a business vehicle lease can also affect the overall cost.
A business covering 20,000 or 30,000 miles a year could have a very different eVED liability from a private driver covering 6,000 or 7,000 miles.
For that reason, businesses should consider how their vehicles are actually used before deciding which powertrain makes the most financial sense.
Are Electric Vehicles Becoming Less Attractive?
The introduction of eVED undoubtedly removes another of the financial advantages that helped make electric vehicles attractive to motorists.
However, that doesn’t necessarily mean EVs will become an unattractive option.
Electric vehicles can still offer lower energy costs, reduced maintenance requirements and other potential advantages depending on how and where they are used. For businesses, EV charging at home and in the workplace can also have a major influence on the overall cost of running an electric vehicle.
The important point is that the calculation is changing.
The financial benefits associated with electric motoring can no longer be assessed simply by comparing electricity costs with petrol or diesel prices. Taxation now needs to be part of that calculation too.
For businesses, this makes accurate mileage forecasting particularly important.
What Should Businesses Consider Before Leasing An EV?
If you’re considering an electric vehicle for business use, don’t base the decision solely on the monthly lease price.
Think about how many miles the vehicle is realistically going to cover and how those miles are distributed throughout the year.
A low-mileage business user may see little impact from eVED, while a high-mileage fleet could face a much more significant additional cost.
It’s also worth considering how long you intend to keep the vehicle. A typical three- or four-year lease could span the introduction of eVED, meaning businesses entering into a new agreement before 2028 could still be operating the vehicle when the new mileage charge comes into force.
As the government finalises the details of the scheme, businesses should keep an eye on how the rates, mileage reporting requirements and payment arrangements develop.
The Future Of EV Taxation
The introduction of eVED marks a significant change in the way electric vehicles are taxed in the UK, and the proposals have also prompted discussion across the leasing and automotive industries. Industry bodies such as the BVRLA have raised concerns about proposed EV road pricing measures, highlighting the potential impact on motorists and the wider leasing sector.
As more motorists move away from petrol and diesel, the traditional reliance on fuel duty will become increasingly difficult to maintain. A mileage-based system provides the government with a way of continuing to raise revenue from road users, regardless of the vehicle’s powertrain.
For EV drivers, however, it means the cost advantages of going electric need to be considered more carefully.
Electric vehicles can still make excellent financial and operational sense, particularly for businesses that can charge cheaply and make good use of their vehicles.
But from 2028 onwards, mileage will become another important part of the EV cost equation.
For businesses considering the switch to electric vehicles, access to reliable and convenient charging remains a key factor when planning the transition to an electrified fleet.
Leasing providers can help simplify the process by advising on suitable vehicles, charging infrastructure and long-term fleet strategies, enabling businesses to make informed decisions based on their operational needs.
For commercial operators, keeping vehicles on the road is essential. Minimising downtime while maintaining efficiency and reliability is critical to supporting day-to-day business activities.
As charging technology continues to advance, faster charging times could make electric vans, cars and commercial vehicles an even more practical choice. This is especially beneficial for businesses with high-mileage drivers, multiple operating sites or time-sensitive delivery schedules, where reducing time spent charging can have a direct impact on productivity.
Concerned about rising fuel costs? Discover why more UK businesses are turning to electric vehicle leasing to reduce running costs and protect themselves from unpredictable fuel prices in our guide: “Why Now Is the Perfect Time to Lease an Electric Vehicle.” Read the full article
Looking to install EV charging at your business? Find out how the UK Government is supporting the transition to electric vehicles with increased funding for home and workplace charging installations in our latest guide.
Still have questions about owning an electric vehicle? Find out what happens if an electric vehicle runs out of charge or breaks down, and how roadside assistance providers help get drivers back on the road.
If you’re considering an electric car or commercial vehicle, it makes sense to look at the complete cost of running the vehicle rather than focusing solely on the monthly lease payment.
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