Budget 2025: 3p mileage charge for EVs

Jacob Grattage, Reporter, Business & Accountancy Daily. Croner-i

EV drivers face a pay-per-mile tax on their annual mileage, due to be added to road tax and monitored at MOTs.

The chancellor plans to tax EV drivers from April 2028 with a special electric vehicle mileage rate set at 3p per mile. But this will not affect petrol and diesel drivers.

The government said this will cost the average EV drive £240 per year on top of existing road tax. But experts warn this will have a hugely damaging impact on EV sales as drivers already face very expensive car prices in this segment.

The so-called electric vehicle excise duty, a new mileage charge for electric and plug-in hybrid cars will come into effect from April 2028. Drivers will pay for their mileage alongside their existing road tax.

The mileage charge will be payable each year, at 3p per mile and 1.5p for plug in hybrids.

Vans, buses, motorcycles, coaches and HGVs will be excluded initially.

The government is also increasing the threshold at which motorists with new electric vehicles must pay the expensive car supplement from £40,000 to £50,000, with effect from 1 April 2026.

A new eVED reporting and payment process will be integrated into the existing road tax system and administered by DVLA, and mileage will be checked at MOTs.

For new cars, dealerships will have the option to prepay and bundle eVED mileage into the on-road price of a car. Alternatively, the vehicle owner will be able to make their own arrangements and estimate their mileage for the remainder of the tax period, for eVED purposes.

For existing cars, at VED renewal each year, motorists will be prompted to enter their vehicle’s mileage reading and then estimate their mileage for the year ahead. Based on this estimate, an estimated annual eVED liability will be calculated by DVLA, using the applicable rate, the Treasury document stated.

Road charging on electric vehicles will hit the car industry by crushing demand for electric vehicles if the price of running one is so much higher than a traditional combustion engine.

Mamta Valechha, analyst at Quilter Cheviot, said: ‘The mileage-based tax for electric vehicles, while necessary, will have unintended consequences for the sector.

‘This added charge will dampen demand for electric vehicles at a time where sales need to increase to meet government targets.

‘The impact is likely to be small for now, but given pressure to transition to electric vehicles it could easily stall progress. This does little to incentivise legacy makers to make the switch and look to boost electric vehicles production.’

The government has published a consultation for comment with more details on the way the system will work and an online survey. Responses are due by 18 March 2026.