Fleets hope for electric vehicle tax threshold change in Spring Statement

Fleets facing a new tax on electric vehicles (EVs), due to take effect from April, are hoping the Chancellor will deliver some good news in the Spring Statement.

Rachel Reeves is being urged by the fleet and leasing sector to change the threshold for the surcharge on vehicle excise duty (VED), also known as the expensive car allowance or the luxury car tax.  

It was introduced in 2017, for all new, internal combustion engine (ICE) vehicles costing more than £40,000.

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

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.

It currently costs £410 and is paid annually for five years starting from the first standard VED payment that is made when the car is a year old.

It is set to rise to £425 from April, leaving fleets facing increased rentals and, in turn, impacting wholelife costs, crucial to making EVs an economical as well as a green choice.

Furthermore, first year VED rates are being increased from zero to £10 for battery electric vehicles (BEVs) and from zero to £110 for plug-in hybrid electric vehicles (PHEVs) emitting between 1-50g/km of CO2. 

Second year rates, which will be applied retrospectively, have risen more dramatically for BEVs – from zero to £195.

As a result, the Association of Fleet Professionals (AFP) has warned that some fleets will see their liability on widely-adopted EVs rise per vehicle from zero to £2,490 over a five-year period.

The Government has acknowledged the new tax poses a problem for the EV market. 

In the Autumn Budget, the Government said it recognised the “disproportionate impact” of the expensive car supplement threshold for those purchasing zero emission cars and will consider raising the threshold for zero emission cars at a future fiscal event, to make it easier to buy electric cars.

Appearing on a recent tax webinar organised by the AFP, Harvey Perkins, tax expert and co-founder of HRUX, said that Reeves has an opportunity to raise the threshold in the Spring Statement on Wednesday (March 26). 

“There’s a chance that there will be a change regarding the expensive supplement,” he said.

Negatively impact the EV market

Vehicle leasing company Alphabet is concerned the new tax on EVs will negatively impact adoption rates in the new car market, with just one-in-five zero-emission cars (19%) currently costing less than £40,000, according to analysis. 

Furthermore, with the tax impacting EVs up to six years old, it will have a detrimental effect on used car market, it says. 

Alphabet data has revealed that the average P11D value of quotable petrol, diesel, hybrid and EV models is £51,855 – just over 25% more than the current £40,000 threshold. 

However, if you look at the 961 quotable EV models, the average list price is £60,273, and for 81% of quotable EVs that are listed over £40,000, the average P11D equates to £66,041, leaving just 19% below that threshold

As a result, it is calling on the Government to increase the threshold to £60,000 for EVs to better reflect the market.    

The AA, meanwhile, is urging the Chancellor to cut VAT on public charging from 20% to 5% to help incentivise registrations and offset a hike in VED for plug-in cars.

Tariffs pose potential fleet risk

It is unclear whether Reeves will make a swathe of announcements in the Spring Statement, which is being delivered against the backdrop of a faltering economy.

The Treasury is stressing Wednesday’s economic statement is “definitely not a Budget”, with few new policies and no further tax rises.

Paul Holland, managing director for UK/ANZ Fleet at Corpay, including UK brands, Allstar and Keyfuels, says that UK fleet operators are navigating a period of “sustained financial pressure”, with fuel prices remaining high and economic uncertainty complicating planning for the future. 

“As we approach the Spring Forecast, there is little indication that meaningful relief will be forthcoming,” he added. 

“While businesses are still managing the aftereffects of recent fuel price surges, external trade policies now pose the greatest risk.” 

He believes that a potential 25% tariff on UK trade with the US could have severe knock-on effects, particularly for fleets reliant on European-manufactured vehicles. 

“At a time when businesses need cost-effective options to transition to electric vehicles, further price hikes could delay adoption,” he said.

“The UK’s energy markets also remain volatile. While BP’s move away from clean energy investments could reduce pressure on oil prices in the medium term and additionally, the reintroduction of Russian oil into global supply chain could further help ease oil prices.  

“However, long-term instability in oil markets persists and this will not help businesses plan nor manage their fuel costs.” 

Compounding these challenges is inflation and reduced access to credit, making cash flow management increasingly difficult. 

Holland concluded: “The Government must recognise that businesses need action tailored to these uncertainties. 

“Fuel price stability should be a core focus to prevent costs from escalating across supply chains and ultimately reaching consumers. 

“Without targeted fiscal measures, fleet operators will continue to struggle with rising expenses and financial unpredictability, making it harder to invest in long-term efficiencies. 

“If the Spring Forecast offers little beyond minor adjustments, businesses will be left to absorb rising costs with no clear pathway to sustainability or stability.”