Is it still worth buying an electric car? Electric vehicle (EV) drivers got a shock in the Budget when chancellor Rachel Reeves announced that they would be charged a pay per mile tax for their motor from April 2028.
Driving an EV has benefits over a petrol or diesel car as charging at home can work out cheaper than filling a tank, plus there are tax benefits through company car schemes. But EV drivers may find themselves in a jam from April 2028 when a new charge of 3p per mile is introduced called the electric vehicle excise duty (eVED).
The rate will be increased by inflation each year and the Treasury expects an EV driver accruing 8,000 miles per year will pay around £20 per month or £240 annually, which is half what a petrol or diesel driver pays in fuel duty.
This raises questions about whether the pay per mile charges will offset any of the tax or petrol savings – but calculations by auto and tax experts for The Independent suggest EVs will still work out cheaper than running a petrol car as long as you are charging at home.
Here’s everything you need to know and consider if you’re thinking of buying an electric car.
The cost of running an electric car
The upfront cost of purchasing an EV is often higher than a petrol or diesel car. But electricity is cheaper than petrol so charging an EV at home can bring lower running costs.
Analysis by Auto Express for The Independent suggests that with the UK average petrol price at £1.37 per litre, a petrol car returning 40 miles per gallon (mpg) costs around 15.5p per mile to run.
In contrast, an electric car returning four miles per kiloWatt-hour (kWh) and charged at the current average UK domestic electricity cost of around 26p per kWh will cost around 6.5p per mile.
From 2028, the proposed pay per mile tax would add 3p per mile to the EV cost, making it around 9.5p per mile.
Steve Walker, head of digital content at Auto Express, said. “The electric car would still cost less to fuel than the petrol car and with the government set to abolish the 5p fuel duty cut in 2026, allowing fuel duty to rise with inflation, the gap is likely to grow.”
But the complications come in terms of EV charging costs.
EV running cost cut-off point?
EV drivers with home charging can get special electricity tariffs with overnight rates as low as 8p per KWh, but those forced to use public charging could be paying 90p per kWh.
Walker suggests that if you’re paying more than 70p per KWh to charge your EV at today’s prices, that’s 17.5p per mile in a 4-mile per KWh car – which would then make it cheaper to buy petrol.
Eamonn Prendergast, chartered financial adviser at Palantir Financial Planning, said it will be important for EV drivers to think realistically about their mileage.
He said: “The pay-per-mile levy narrows the margin for high-mileage drivers. The extra cost could wipe out the savings, especially if they rely on costly public charging.
“It’s no longer enough just to assume EVs are cheaper: people need to run the numbers carefully, look at how and where they charge, and decide based on total running costs, not just green credentials.”
Tax benefits of EV ownership
A common way for drivers to own EVs is through salary sacrifice schemes.
Using salary sacrifice for a car means an employee gives up part of their pre-tax salary to pay the lease payments on an EV.
The employee’s income is effectively lower, saving them tax. There will still be national insurance to pay and benefit in kind (BIK) payments but it can be a cheaper way to get a new EV – and an effective way to reduce your tax bill.
Calculations for The Independent by Blick Rothenberg showed the tax savings are unlikely to change, especially compared with a petrol car.
The accountancy firm compared leasing a Tesla Model Y through a company with an equivalent petrol counterpart, a BMW X3, with both driving 8,000 miles per year, as highlighted in the table below.
|
Factor |
Tesla Model Y |
BMW X3 |
|---|---|---|
|
List price |
£60,280 |
£60,140 |
|
BIK percentage |
3% |
37% |
|
Car benefit |
£1,808.40 |
£22,251.80 |
|
Fuel benefit |
£0 |
£10,434 |
|
Model Y eVED charge vs X3 vehicle tax |
£240 |
£2,190 |
|
Total taxable amount |
£2,048.40 |
£34,875.80 |
|
Total tax payable by employee |
£921.78 |
£15,694.11 |
|
Total NIC payable by employer |
£307.26 |
£5,231.37 |
The tax on a Tesla for an employee would be just £921.78 per year even with the new EV mileage charge, compared with £15,694 for the BMW.
Saffron Pemberton-Jandu, an employment tax specialist at Blick Rothenberg, adds that despite the extra average £240 cost, driving an EV can still be cheaper.
She highlights that EV buyers can also benefit from up to £3,750 off new models under the government’s Electric Car Grant scheme, while there are also plans for more investment in charging infrastructure.
Scott Gallacher, director at financial advisory firm Rowley Turton, said: “For company-car and salary-sacrifice users, the mileage charge barely dents the numbers — the tax benefits remain far larger — so EVs should still stack up for most.”
Should you buy an electric car?
That is the £240 annual question – and there are other factors at play too which will be dependent on your personal circumstances.
Those can include the upfront costs for the model you want and issues such as access to public charging points and potential range anxiety.
But if your mileage remains typical and you can charge at home, it appears that the ongoing running costs will still be cheaper than a petrol or diesel car, even once the new pay-per-mile tax is introduced.
When investing, your capital is at risk and you may get back less than invested. Past performance doesn’t guarantee future results.
