This Week in EV: Tax Tax Baby
Tom Clarke
Strategy & Product Leader | EV Product Manager at Parkopedia | Founder, This Week in EV | Advisory Board Member | MBA, CMgr FCMI
This week’s newsletter is a bit different as I wanted to deep dive into the world of tax. A few weeks ago I posted about the mileage tax for EV drivers that the lawmakers in Vermont are considering and I’ve written about the impact of industrial policy on EV adoption, in particular the Inflation Reduction Act giving US consumers a $7,500 tax credit. I therefore thought it might be worth having a look at just what the tax situation is for EV drivers in the UK and what the future might hold for EV taxation.
Lets begin at the start for any ICE owner looking to switch to an EV and that’s the purchase of a new car. If they are buying new then that comes with 20% VAT or if they buying second hand from a dealer that will also come with 20% VAT although if through a private seller then there’s no VAT. If that driver was on a budget and looking at the entry MG 4 with it’s list price of ￡25,995 our new EV driver would be paying the taxman ￡4,332.50 in VAT. Then our MG 4 owner needs to pay Vehicle Excise Duty (VED) but there’s good news here, they won’t have to pay anything till April 2025 when they’ll have to pay ￡165 a month.
Now they’ve got the car what about insurance? If you buy car insurance you pay Insurance Premium Tax which currently stands at 12%. Whilst the MG 4 isn’t as pricey as some EV’s to insure the cheapest price I was able to get was ￡668.70 of which ￡71.65 is IPT taking the taxman’s take up to ￡4404.15. I’ve assumed that our new EV driver is driving ,8000 miles a year and will to pay a small voluntary excess but even with a much larger excess that price isn’t going to move that much.
Now they’ve got the car and insured, they can drive it home, so time to talk charging. We’ll assume our new EV driver is charging at home half the time and using rapid public charging the other half. A quick look at Rightcharge and the Home Pro by Ohme looks like the best deal, which, with installation is ￡1092 of which 20% is our old friend VAT so another ￡182 is going to HMRC. Our EV driver is going to be charging at home for 4,000 miles, the MG 4 consumes 275 Wh/mile according to EV database which translates to 1100 kWh for 4,000 miles. If our EV driver can keep their charging to overnight they can charge for 10p per kWh which translates to just ￡400. Home energy tariffs are taxed at just 5% so it’s just ￡20 going to HMRC for all those miles.
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The other 4,000 miles though our EV driver is going to be using the public charging network, given how good they are for this example we’ll say they only use Instavolt who charge 75p per kWh which adds up to ￡3,000 for the year. Whilst our home charging is only paying 5% tax public charging attracts 20% so the tax man has taken ￡600 for the years public charging. In all the tax man has taken ￡802 for charging with the bulk of that for public charging and brings HMRC’s total haul to ￡5206.15.
So what’s the key takeaways, whilst there is some tax relief for EV owner’s in the form of VED it’s tiny. Those EV owners who don’t have a driveway are being heavily penalised for it. Whilst they won’t necessarily be rapid charging all the time even if they use something like ubertricity on their cheapest rate of 45p per kWh they are still paying over 4 times what those with home charging could be paying. The government is currently penalising those who can’t afford to buy somewhere with a driveway and urgently needs to align the VAT rate between home charging and public charging. EV owners though are avoiding having to pay any fuel duty to the government due to using electrons rather than dinosaurs given this accounts for ￡25 billion of government revenue the clock is ticking with this figure only going to go down so expect a new tax regime to be announced in the next couple of years.
That said the government is taking plenty of tax on EV’s, if it wanted to it could further incentivise their adoption through reducing tax on the sale of new cars, particularly those under ￡30,000 or through the reduction or removal of insurance premium tax on EV’s. EV adoption is growing but government action can not only accelerate it but make it fairer.
They’ll be no This Week in EV next week as I’ll be on holiday so I’ll see you again in 2 weeks.
Financial Services - Business Development Lead
1 年Interesting. I can confirm the MG4 EV is a super car for the price too. ?? (it's all relative though: my ev car history inc leaf, zoe, i3, i3s)
Financial Leadership for Growth-Oriented Startups and Small Businesses | Fractional CFO | NED
1 年Good article Tom, interesting points. The biggest consideration for government will be the tax implications on fuel and lost revenue, which to remedy may become the biggest obstacle to user take up. Caught by the ULEZ extension I need to change my family car. I have a drive so home charging is fine, the significant majority of journeys are well within battery limits so I have no range anxiety, and I quite like the idea of going all electric. The major block is the cost, where an electric version of something big enough for a family and a dog seems to be at least ￡10k more than the ICE version. We dont do that many miles and with home charging we can get the ￡10k back over time. But what is my incentive to buy a much more expensive car if the government introduce a mileage tax that wipes out my fuel saving. This isnt an easy problem to solve and may need real innovation or something truely disruptive to make a major change happen.
Engineering Delivery & Capabilities Manager at RAF | Electrical & Avionics | CAA & Certification Experienced.
1 年Interesting read! The parts that interest me going forwards are: the lost revenue from fuel duty as you stated in your article which will be needed to be made up somehow, but there is also an extra levy on Road Fund Licence for new ICE cars over ￡40k, so many are nearly ￡600 a year for even a 2.0D BMW. This will likely be reclaimed by the govt. Then the matter of insurance, where I have heard insurers are reticent to repair many EVs after a crash because of potential hazards with the battery and not knowing whether its damaged. This then gets written off, so insurers will be paying out more, leading to higher premiums. I don't think 'cheap' motoring is here to stay. Make hay when the sun shines?
??Available?? | Managing Director | Chief Operating Officer | C-Suite | Engineering | High Value Added Manufacturing | Operational | Solar | BESS | EV | EV Charging | Transformation | Sustainability | Interim |Turnaround
1 年Interesting article Tom. The 20% VAT on public charging is a real kicker for many to stop them stepping into the EV arena, because the price differential to refuelling an ICE vehicle is small, especially with the current high energy costs. But energy costs are reducing. What we need is to bring the public charging VAT in line with those with off street parking, particularly in the near home charging arena where EV drivers park outside their homes on the street and want to charge up overnight just the same as someone using a home charger. Companies such as Urban Fox Network with their retractable charger can provide a solution here. So a level 5% across the board for home and near home charging would start to generate a lot of interest in EV ownership as people gain the assurance that they can charge at or near their home for a cheaper rate.
Chief Strategy Officer at Infinity Energy Services
1 年Great analysis, Tom, as always.