Apart from special circumstances like winning lotto at Lottoland, most types of income are taxable in the UK, and electric vehicle owners will be subjected to the same in the near future. Currently, electric vehicles are free from car road tax ratings, while hybrids enjoy a reduced road tax rate.
According to reports, Chancellor Jeremy Hunt noted that electric vehicles will be subjected to Vehicles Excise Duty (VED) from 2025 to boost revenue for the Government and prepare for the dwindling revenue from fuel duty.
However, the Government could start taxing electric car owners before 2025 due to falling Government revenue. The sales of electric vehicles have been on the rise recently, with the growth projected to increase by 14% between 2023 and 2027.
This means the Government must find a solution as soon as possible to replace the increasing loss in fuel duty and road tax.
One solution to this could be introducing VED to electric car owners before 2025 or cutting down on the expansion of EV charging infrastructure. There is also a possibility of doing both at the same time.
But such measures are unlikely to affect hybrid owners, who currently enjoy reduced VED in the UK.
Will People Leasing Electric Cars Be Affected?
The objective of this measure is to ensure all drivers are subjected to fairer tax contributions. If you own a fully electric car registered on 1 April 2017 will only pay £10 for the first year. From there, you will pay the standard annual VED of £165.
This measure will affect you if you own an electric car, van, or motorcycle. Therefore, you can counteract the full cost of VED by leasing an EV.
In the UK, most individuals and companies prefer leasing electric vehicles because they exempt them from vehicle tax. They only pay fixed monthly payments, enjoy lower maintenance costs, can switch to a new car upon the expiry of the lease, and are not affected by depreciation.
Another benefit people leasing electric cars enjoy in 2023 is that they can reclaim 100% of the full monthly rental deductibles. Furthermore, leasing a car with emissions of 50g/km or below allows them to enjoy the same benefits, leading to a corporation tax savings of 19%.
However, the hardest part is when claiming back the 100% of the VAT. You must prove to the HMRC that the vehicle has not been used in a personal capacity.
Luckily, you can reclaim 50% of the deductibles if the car has been used by a company or for personal reasons.
How Will the Measure Impact Businesses and Individuals?
Going by the proposed rule, the measure will not have a significant impact on business in the UK after it takes effect in 2025. The introduction of VED on electric vehicles does not change any process. Therefore, it will generally not affect individuals’ and businesses’ experiences when dealing with HMRC.
Furthermore, the measure is expected to result in an insignificant one-off payment as individuals and businesses familiarise themselves with its application, including updates in the administrative systems and rate changes.
However, the DVLA (Driver and Vehicle Licensing Agency) should expect some operational impacts. They will have to make a few changes to the current VED system.
Should You Lease or Buy an Electric Car in 2025?
Electric vehicles are a significant part of the UK’s plan to achieve net zero emissions. Besides, these vehicles are becoming increasingly popular globally, let alone in the UK.
Since their future seems bright, you may be in a dilemma about buying or leasing an electric car when the new measure takes effect.
Here are the benefits and drawbacks of leasing an electric car to help you make the decision that best suits you:
Pros
- You get to drive a brand new environmentally friendly car more often.
- You can switch to the latest models more often.
- Leased cars have fewer maintenance requirements.
- You enjoy lower monthly payments.
Cons
- You might be penalised for exceeding the agreed mileage.
- You might be required to pay for its maintenance on an annual basis.
- Battery rental may not be included in the leasing fee.
Final Thought
Leasing is not suitable for everyone. If you look at the options and decide leasing is not ideal for you, there are other cost-friendly ways of owning your dream EV, including personal contract purchase (PCP) and hire purchase (HP). Ensure you do thorough research on each to make an informed decision.
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