The way electric vehicles are taxed in the UK is set to change again, with the Government planning to introduce a new mileage-based tax for electric and plug-in hybrid cars from April 2028.
Known as Electric Vehicle Excise Duty, or eVED, the proposed system would introduce a charge based on the number of miles a vehicle travels. Fully electric cars would be charged at 3p per mile, while plug-in hybrid vehicles would face a lower rate of 1.5p per mile.
For businesses operating company cars and larger fleets, the introduction of eVED raises important questions around running costs, administration and long-term vehicle planning.
However, special arrangements have also been announced for fleets and leasing companies, designed to make the new system easier to manage when operating large numbers of vehicles.
What is eVED?
Electric Vehicle Excise Duty is a proposed mileage-based tax for electric and plug-in hybrid cars.
Under the plans due to take effect from April 2028:
- Fully electric cars would pay 3p for every mile driven.
- Plug-in hybrid cars would pay 1.5p for every mile driven.
This would be separate from the existing Vehicle Excise Duty system and represents a significant change in how electric vehicles are taxed.
As more drivers move away from petrol and diesel vehicles, revenue from fuel duty is expected to decline. A mileage-based charging system is intended to create a new source of revenue from vehicles that do not consume traditional road fuels, or use considerably less of them.
What could the new EV mileage tax cost drivers?
For an electric car travelling 10,000 miles per year, a 3p-per-mile charge would equate to approximately £300 annually.
At 15,000 miles, the cost would rise to £450 per year, while an electric vehicle covering 20,000 miles annually could face an additional charge of around £600.
For a plug-in hybrid charged at 1.5p per mile, the equivalent costs would be approximately £150, £225 and £300 respectively.
For an individual driver, these amounts may be relatively straightforward to calculate. For a business operating dozens, hundreds or potentially thousands of vehicles, however, the financial impact can quickly become much more significant.
A fleet of 100 electric cars, each travelling an average of 15,000 miles annually, could theoretically generate £45,000 per year in eVED charges at the proposed 3p-per-mile rate.
This means fleet operators will need to consider eVED as part of their whole-life cost calculations when comparing different vehicles and powertrains.
Special eVED arrangements for fleets and leasing companies
Recognising the additional administrative burden that mileage-based taxation could create for larger fleets, the Government has announced special arrangements intended to simplify the process.
These measures are expected to include greater flexibility around mileage declarations, bulk vehicle licensing and payment arrangements.
Rather than requiring every fleet vehicle to be dealt with individually in exactly the same way as a privately owned car, the proposed system aims to provide businesses and leasing companies with a more practical approach to managing larger vehicle volumes.
This could be particularly important for vehicle leasing companies, rental businesses and major fleet operators managing hundreds or thousands of vehicles.
How will vehicle mileage be recorded?
Mileage is expected to play a central role in the new eVED system.
Drivers and vehicle keepers may initially provide an estimated annual mileage figure, with actual mileage later used to reconcile the amount owed.
For vehicles old enough to require an MOT, officially recorded MOT mileage data could help verify the distance travelled.
Special consideration has also been given to newer vehicles that have not yet reached their first MOT. The proposed fleet arrangements are intended to reduce the need for unnecessary additional mileage checks purely for eVED purposes.
The exact administration of the scheme will be important. Fleet vehicles frequently change drivers, are returned early, move between locations or experience significant variations in annual mileage, meaning flexibility will be essential.
What does eVED mean for business fleets?
For businesses, the biggest impact is likely to be on whole-life vehicle costs.
The monthly rental or purchase price of a vehicle is only one part of its overall cost. Fleet decision-makers increasingly need to consider:
- Vehicle acquisition or monthly rental costs.
- Electricity or fuel consumption.
- Vehicle Excise Duty.
- Benefit-in-Kind taxation for company cars.
- Charging infrastructure.
- Insurance and maintenance.
- Depreciation and residual values.
- Mileage-related taxation.
The introduction of eVED adds another variable to this calculation.
High-mileage fleets could be particularly affected. Sales teams, field-based employees and businesses whose drivers regularly cover significant distances could see considerably higher eVED costs than low-mileage urban fleets.
Could eVED make electric vehicles less attractive?
This is likely to be one of the biggest questions surrounding the new system.
Electric vehicles continue to offer potential advantages for many businesses, particularly when it comes to company car Benefit-in-Kind taxation, lower energy costs in the right circumstances and helping businesses meet sustainability targets.
However, the introduction of additional mileage-based taxation changes the calculation.
Businesses considering electric vehicles will increasingly need to assess their actual operating patterns rather than simply comparing headline monthly rentals.
For a low-mileage driver with access to affordable home or workplace charging, an electric vehicle could still offer a compelling financial proposition.
For a high-mileage driver relying heavily on expensive public rapid charging, the combination of charging costs and a mileage-based tax could make the financial comparison more complicated.
This does not necessarily mean electric vehicles will become unsuitable for fleets. It does mean choosing the right vehicle for the right driver will become even more important.
Is a pay-per-mile tax fair?
There are arguments on both sides.
Supporters may argue that all vehicles use the road network and that, as petrol and diesel fuel duty revenues decline, a new approach to motoring taxation is inevitable.
A mileage-based system also has a certain simplicity: the more miles a vehicle travels, the more it pays.
However, there are also concerns about the timing.
Businesses and consumers are still being encouraged to move towards electric vehicles, while manufacturers face increasingly ambitious targets for zero-emission vehicle sales.
Introducing additional taxes on EV use could potentially affect buyer confidence and make some businesses reconsider the timing of their transition.
There is also the question of how rural drivers, high-mileage workers and businesses with limited access to affordable charging infrastructure could be affected.
What should fleet operators do now?
With eVED not expected to begin until April 2028, businesses have time to prepare.
However, fleet planning often takes place several years in advance, particularly where vehicles are leased on three or four-year contracts. Vehicles ordered today could therefore still be operating when the new tax takes effect.
Businesses may want to begin considering eVED when evaluating future fleet strategies, particularly for high-mileage drivers.
Reviewing real-world mileage data, charging access, vehicle usage and whole-life costs can help businesses determine which powertrain is most suitable for each driver or operational requirement.
The key is to avoid treating electric, hybrid, petrol and diesel vehicles as one-size-fits-all solutions. The right choice will depend on mileage, journey patterns, charging availability, tax position and the practical requirements of the driver or business.
How MPH Vehicle Solutions can help
At MPH Vehicle Solutions, we help businesses make informed vehicle decisions based on their actual operational requirements.
We can support businesses with:
- New and used cars and vans across multiple manufacturers.
- Business and personal contract hire.
- Finance lease and hire purchase.
- Electric and hybrid vehicle sourcing.
- Salary sacrifice solutions.
- Fleet management and fleet support.
- Short-term vehicle rental.
- Specialist and converted commercial vehicles.
As vehicle taxation, funding and technology continue to evolve, choosing the right vehicle is becoming increasingly complex.
Our aim is to provide clear advice and practical vehicle solutions based on how your business actually operates.
If you're reviewing your company cars, vans or wider fleet strategy, speak to MPH Vehicle Solutions to discuss the options available.
Frequently Asked Questions
eVED stands for Electric Vehicle Excise Duty. It is a proposed mileage-based tax that would charge electric and plug-in hybrid cars according to the distance they travel.
The proposed eVED system is expected to begin in April 2028.
Under the proposed system, fully electric cars would be charged 3p per mile.
Plug-in hybrid cars would be charged 1.5p per mile under the current proposals.
At 3p per mile, a fully electric car travelling 10,000 miles annually would face a charge of approximately £300 per year.
Yes. Special measures have been announced to reduce the administrative burden for fleets and leasing companies, including arrangements around estimated mileage, bulk licensing and greater payment flexibility.
The proposed eVED mileage charge is expected to operate alongside the existing Vehicle Excise Duty system rather than replacing it entirely.
Not necessarily. Electric vehicles can still offer significant benefits for certain businesses and drivers. However, future mileage-based taxation should be considered alongside charging costs, Benefit-in-Kind tax, monthly rental, operational suitability and other whole-life costs.
Yes. MPH Vehicle Solutions can help businesses assess their vehicle requirements based on mileage, journey patterns, charging availability, operational needs and funding preferences to identify suitable cars and vans.