Is it still worth buying an electric vehicle after tax changes made in the Budget?

Is it still worth buying an electric car? Electric vehicle (EV) drivers received a shock in the Budget when Chancellor Rachel Reeves announced they would be charged a per-mile tax on their motors from April 2028.

Driving an electric vehicle has advantages over a petrol or diesel vehicle, as charging at home can be cheaper than filling up, plus there are tax benefits through company car schemes. But EV drivers could find themselves in a bind from April 2028, when a new charge of 3p per mile called electric vehicle excise duty (eVED) comes into effect.

The rate will be increased each year in line with inflation, and the Treasury expects that an EV driver driving 8,000 miles a year will pay around £20 a month, or £240 a year; That’s half what a petrol or diesel driver pays in fuel tax.

This raises questions about whether pay-per-mile fees would offset any tax or gas savings; but calculations made by automobile and tax experts Independent We’d argue that EVs will be cheaper to run than driving a gas car, as long as you charge them at home.

If you’re considering buying an electric car, here’s everything you need to know and consider.

Cost of running an electric car

The up-front cost of buying an EV is generally higher than a petrol or diesel car. However, since electricity is cheaper than gasoline, charging an EV at home can reduce operating costs.

Analysis by Auto Express Independent Given that the average petrol price in the UK is £1.37 per litre, a petrol car that gets 40 miles per gallon (mpg) costs around 15.5p per kilometre.

By comparison, a charged electric car that goes four miles per kiloWatt-hour (kWh) and where the current average UK domestic electricity cost is around 26p per kWh will cost around 6.5p per mile.

The proposed pay-per-mile tax from 2028 would add 3p per mile to the cost of EVs, making it around 9.5p per mile.

said Steve Walker, head of digital content at Auto Express. “The fuel cost of an electric car will still be lower than a petrol car, and the gap is likely to widen as the government decides to scrap the 5p fuel duty levy in 2026, allowing fuel duty to rise with inflation.”

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But the challenges arise in terms of EV charging costs.

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EV operating cost cut-off point?

EV drivers who charge at home can benefit from private electricity tariffs with overnight rates as low as 8p per kWh, but those who have 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 works out to 17.5p per mile on a 4 mile car per KWh, making it cheaper to buy petrol.

Eamonn Prendergast, chartered financial advisor at Palantir Financial Planning, said it would be important for EV drivers to think realistically about their mileage.

He said: “A pay-per-kilometre tax 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 to just assume EVs are cheaper: people need to crunch the numbers carefully, look at how and where they charge, and decide based on their total running cost, not just their green credentials.”

Tax advantages of EV ownership

A common way for drivers to own electric vehicles is through salary sacrifice programs.

Sacrificing salary for a car means an employee gives up some of his or her pre-tax salary to pay for the electric vehicle’s lease payments.

The employee’s income is actually lower, resulting in tax savings. National insurance for payments in kind (BIK) will still be available, but this can be a cheaper way to buy a new EV and an effective way to reduce your tax bill.

Calculations Independent Blick Rothenberg showed that the tax savings are unlikely to change, especially when compared to a gasoline car.

The accounting firm compared leasing a Tesla Model Y through a company to an equivalent gasoline counterpart, the BMW

Tesla’s tax for an employee would be just £921.78 a year, even with the new EV mileage charge, while for BMW the figure would be £15,694.

Saffron Pemberton-Jandu, employment tax expert at Blick Rothenberg, adds that despite the average extra cost of £240, it could still be cheaper to drive an electric vehicle.

He highlights that electric vehicle buyers can also benefit from a discount of up to £3,750 on new models implemented by the government. Electric Car Grant ProgramThere are also plans to invest further in charging infrastructure.

Scott Gallacher, director at financial consultancy Rowley Turton, said: “For company car and salary-sacrificing users, mileage charges barely impact the figures – the tax benefits remain much larger – so EVs should still add up for most.”

Should you buy an electric car?

This is the £240 per year question and there are other factors that will depend on your personal circumstances.

These may include 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 normal and you can charge at home, it looks like ongoing running costs will be cheaper than a petrol or diesel car, even when the new pay-per-mile tax is introduced.

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