The UK Government is preparing to introduce a new pay-per-mile tax for Electric Vehicle (EV) and Plug-In Hybrid drivers, confirmed in the Autumn Budget 2025. For years, these drivers have benefitted from incentives meant to encourage them to switch from petrol and diesel to electric. These incentives included zero-rate Vehicle Excise Duty (until April 2025) and low Benefit In Kind rates for company cars.
The challenge now will be to balance fairness, simplicity and environmental ambition. With a careful balance, the scheme could ensure all drivers contribute fairly while keeping EVs cheaper to run.
Reason Behind Pay-Per-Mile Tax
Fuel Duty has long been one of the Treasury’s most reliable revenue sources, raising tens of billions of pounds annually. As more drivers transition to electric cars, this income is falling sharply. This is because EVs do not use petrol or diesel and therefore pay no duty. While EV drivers do pay VAT on electricity, this does not come close to replacing the lost revenue.
To address the gap, Chancellor Rachel Reeves has confirmed the introduction of a new Electric Vehicle Excise Duty in 2028. The Treasury argues this is a fairer way to ensure all drivers, regardless of vehicle type, contribute to road maintenance and the transport infrastructure.
How Pay-Per-Mile Tax Will Work
Under the current proposal, fully electric cars will pay 3p per mile, while plug-in hybrids will pay 1.5p per mile. These rates will also uprate each year in line with inflation. Hybrids pay less because they still use a portion of petrol or diesel. This new charge will sit alongside annual Vehicle Excise Duty, rather than replacing it.
Drivers will estimate their annual mileage when paying their Vehicle Excise Duty. At the end of the year, they will receive confirmation of their actual mileage. These confirmations will likely come from MOT odometer readings or other similar checks. Then, they either pay the difference if they exceeded their estimate or receive a credit if they drove fewer miles.
The government has emphasised that there will be no GPS tracking or roadside monitoring.
What It Will Cost the Average Driver
According to Department for Transport estimates, the average EV driver travels around 8,500 to 8,900 miles per year. At 3p per mile, this equates to roughly £255 to £270 in mileage tax. When combined with standard Vehicle Excise Duty, the typical annual road-related cost could reach approximately £430 to £470. This also depends on vehicle type and mileage.
For comparison, petrol and diesel cars currently face an effective Fuel Duty cost of roughly twice the EV per-mile charge, though this varies widely based on fuel economy. EVs therefore remain cheaper to run overall, even after the pay-per-mile levy.
For example: Driving 8,000 miles a year would result in total road-related taxes of around £430 to £450. A 400-mile journey from London to Edinburgh would incur about £12 in per-mile charges for a fully electric car.
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This article is for general informational purposes only and does not constitute legal or financial advice. While we aim to keep our content up to date and accurate, UK tax laws and regulations are subject to change. Please speak to an accountant or tax professional for advice tailored to your individual circumstances. Pi Accountancy accepts no responsibility for any issues arising from reliance on the information provided.