Clarity over tax threshold for EVs ‘needed now’

With thousands of electric vehicles (EVs) falling foul of the ‘luxury car tax’ for the first time from next year, the Government is being urged to clarify its plans.

As of April 2025, EVs became liable for a surcharge on vehicle excise duty (VED) known as the expensive car allowance or the luxury car tax.

The annual surcharge – currently £425 – applies from years two to six after purchase on any new vehicle priced above £40,000.

The £40,000 threshold includes optional extras and is based on the manufacturer’s official list price of the car, not the price actually paid by the customer.

However, with the Government saying last year that it recognised the “disproportionate impact” of the threshold for those purchasing zero emission cars and would consider raising it for EVs at a “future fiscal event”, it was not tackled in the Spring Statement and remains unchanged today.

Trade bodies, the Association of Fleet Professionals (AFP), the British Vehicle Rental and Leasing Association (BVRLA) and the Society of Motor Manufacturers and Traders (SMMT), have all called for threshold to be changed to help stimulate new and used markets.

Year-to-date, new battery electric vehicle (BEV) registrations have a market share of 20.7%, below the 28% required under zero emission vehicle (ZEV) mandate regulations.

Now, in a letter sent by transport minister Lilian Greenwood to a local MP, she says that the Government is still considering raising the threshold for zero-emission cars only at a future fiscal event.

Matthew Walters, head of consultancy services and customer value at Ayvens, said: “We’re pleased to hear that the minister is still committed to adjusting the luxury car tax threshold for electric vehicles – but fleets need clear guidance as soon as possible, and this is already overdue.”

With newly registered electric cars priced at £40,000 or more attracting the £425 expensive car supplement on top of their first five annual VED (road tax) renewals, he explained: “That’s an additional £1,300 over a typical four-year lease, and a significant cost while fleet budgets are tight, and businesses are being encouraged to make the switch to more sustainable mobility strategies.”

The £40,000 threshold was introduced by the coalition government in 2015, when it was expected to apply to just 5% of new cars.

In 2022, the then Chancellor, Jeremy Hunt, announced it would also apply to EVs, including plug-in hybrids (PHEVs), from April 2025.

New analysis from Ayvens suggests that almost two-thirds of electric cars currently available on the UK market fall foul of the tax.

What are the best electric company cars to avoid the expensive car supplement? 

“Today, around 64% of EVs fall above that limit, meaning the supplement now disproportionately affects those choosing cleaner vehicles,” Walters said.

“Any changes would need to come into effect before April 2026, when the first affected EVs will be re-taxed, but adjustments are already overdue.

“Fleet operators will have factored those costs into total cost of operation (TCO) modelling, and late policy changes creates uncertainty and undermines careful long-term planning.”

He also highlighted how those inconsistencies are not limited to cars. “The £0-rate VED for electric vans was also withdrawn on 1 April 2025,” Walter explained, “which means fleets are facing a £345 tax bill when they renew – during a period where operational challenges mean demand for those vehicles is already lagging behind the Government's ZEV Mandate targets.”

He warned: “Fleets are at the forefront of the transition to zero emission transport and they need timely, consistent tax policy that supports - not disrupts - their investment decisions.

“A considered revision to the expensive car supplement, clearly communicated and implemented with adequate notice, would give fleets the confidence to continue leading the shift to cleaner mobility.”

The Treasury has been asked to comment on its plans for the tax.