How Does Car Tax Work for Electric and Hybrid Cars?
If you are thinking about buying an electric or hybrid car, then you might be wondering if you will need to pay road tax. Vehicle Excise Duty (VED), often called car tax or road tax, is a tax that every car owner in the country should be aware of. Simply put, it’s a payment that is based on car ownership and is partly based on the CO2 emissions of the car, with cars that emit lower emissions costing less to tax.
The good news for you if you want to make the switch to a fully electric car is that they are ‘zero rated’ for VED, meaning that you don’t need to pay any tax on it at all. This applies to all cars that do not have an internal combustion engine, so it doesn’t include hybrid cars, which are charged at a flat rate for VED of £155 annually. Keep reading for everything you need to know about VED and electric cars.
Since April 2017 when the road tax system in the UK was overhauled by the Department for Transport, there has been a flat rate charged for different types of cars. As a result of this, it has become harder for drivers who have low-CO2 cars to avoid paying VED at all. Along with this, there is also an additional tax to pay on very expensive cars that are priced at more than £40,000 when bought brand new. The revision prioritised hybrid and electric cars. In 2020, the rules were slightly changed again. Before then, electric cars that cost more than £40k were liable for an annual VED surcharge the first five times it was renewed. However, since 2020, all electric cars have been exempted from any VED costs regardless of their original value. Head to this guide to find out more about leasing an electric car with no VED to pay.
Cars Registered After 1 April 2017
All cars will have an initial VED cost that can be as much as £2365 per year for the models that cause the most pollution. However, this is included in the list price that you pay to purchase the car brand new, so you may not always notice it as a buyer. After this has been paid, all traditional petrol and diesel cars that cost less than £40k brand new will be subject to a flat VED rate of £165 yearly from the second time that the car is taxed.
Alternative Fuel Cars, which include hybrid and plug-in hybrid models, get a £10 discount, bringing the annual fee to £155. If your car cost more than £40k when it was brand new, then there is an additional £355 per year to pay in VED, but this is only paid for the first five times that you tax it. Fully electric vehicles are exempt from all of these charges, regardless of how much they cost when new. However, bear in mind that this doesn’t mean you don’t have to tax the car – you should still tax it, but there will be no cost to do so.
Cars Registered Before 31 March 2017
Any cars that are registered between 1 March 2001 and 31 March 2017 are taxed under the previous tax system, which is more favourable towards electric and hybrid vehicles. There are no flat fees; instead, lesser polluting cars pay less tax. If you are looking into buying a used hybrid or electric car, it’s worth checking when they were registered as if they were registered before 31 March 2017, they are likely to be completely exempt from paying any VED charges, as long as their emissions are less than 100g/km of CO2. Under the previous model, only the most polluting vehicles will have a significant tax cost.
Are Electric Cars Likely to Be Liable for VED in the Future?
While fully electric cars are currently zero-rated when it comes to VED, it’s worth noting that this is something that is unlikely to last forever. As the proportion of car sales that are made up of fully electric models rises, chances are that things will change as the government will lose more in fuel duty. The revenue generated from VED is currently round £35bn yearly, but if the system isn’t changed, it’s predicted to be at zero by 2040. A national road pricing scheme is likely to be the replacement for road tax and fuel duty. Drivers may be charged for the miles that they cover based on GPS data from electric cars, based on factors like the type of vehicle used and congestion levels.
How to Make Sure Your Electric Car is Legal
While electric cars do not have to pay VED, this doesn’t mean that you don’t have to apply for it. So, while you might be happy about saving yourself some money on road tax by getting an electric car, you haven’t saved any time in applying for it. When you drive an EV, you should get a yearly reminder to pay your VED as normal, and you will need to follow the normal process. Even though it will not cost you anything, you will still need to apply for and get tax on your electric car, or you could be fined, or even have the car towed. The same applies if you are not going to tax your electric car because you are not driving it. If you want to declare your electric car off-road, you will need to do the SORN declaration in the same way as you would a traditional combustion engine vehicle.
What’s Going to Happen After 2030?
With 2030 set to be the year that new petrol and diesel cars are no longer being sold, it’s expected that electric and hybrid cars are going to be the norm by then, so preferential treatment for them is likely to be stopped. By 2030, it’s unlikely that the government is going to allow the majority of drivers in the UK to not pay any VED, although how electric and hybrid cars are going to be taxed, and how much they are going to be taxed is yet to be seen.
How to Tax a Hybrid or Electric Car
You will need to follow the same steps as you would take when taxing a traditional combustion engine car by going to the gov.uk website and applying to pay VED on your car. You can split any payments that you need to pay into monthly instalments or pay for your VED annually in one payment. If you drive a fully electric car, the cost will be £0, but you will still need to finalise the transaction and go through the process as if you were paying for your car to be legal on the roads. For hybrid cars, there will usually be VED to pay, although if you are buying a second-hand hybrid car that was registered before March 2021, it might be free. Again, you’ll need to go through the process and apply as if you were paying, for your car to be legal to drive and to avoid hefty fines.
VED is something that every car driver in the UK should be aware of. Although it’s free for electric cars, you do still need to register for it.