Pay-per-Mile eVED Charges Explained - EVs Remain Cheaper But Gap Closes
Much has been said about the proposed pay-per-mile charges (eVED) being applied to electric cars, with multiple publications focusing on EV tax costs to stir emotions, but, few are recognising the a de facto two-tier pay-per-mile taxation that already exists on petrol, diesel and hybrid cars now.
First up is Fuel Duty, currently set at 52.95p per litre and rising to 57.95p per litre next year. And that tax is also attributed to your right foot, and how much pressure is applied, given that more pressure equates to worse fuel economy, and that means more fill ups.
Secondly, motorists are charged VAT on top of Fuel Duty, meaning that that Fuel Duty tax is taxed itself.
For transparency, we will focus on the taxes applied to petrol, diesel (inc. hybrids) and plug-in hybrids, so that there is a clear understanding of associated costs.
The difference is the point of collection and generally no one looks at a petrol bill and works out the tax being collected. It’s just accepted as the cost to fill up. In other words, there is a dissociation of how much tax drivers were billed at each fill up. Same as grocery shopping.
Whereas, if you’re sat in front of your computer paying for VED, eVED and the Expensive Car Supplement, it somehow seems more like a personal attack on the finances.
Tertiary Taxes
Vehicle Excise Duty (VED) is levied at £200 per year for all cars irrespective of fuel type, and that are registered on, or after, 01 April 2017. A separate tier exists for older cars, which I won’t dive into.
Expensive Car Supplement is applied to petrol, diesel and hybrid (inc. PHEV) cars registered on, or after, 01 April 2017 where the sale value (including options) cost £40,000, or more. Commonly known as Luxury Car Tax, it is currently charged annually at VED renewal and costs £440.
Note: The Expensive Car Supplement was introduced for electric cars first registered on, or after, 01 April 2025 initially for EVs where the sale value (including options) cost £40,000 or more, but the threshold was later increased and applied retrospectively, to £50,000. The same £440 is charged at VED renewal for qualifying EVs.
The proposed Pay-Per-Mile charge, to be introduced on 01 April 2028, will see electric cars accrue an annual charge allied to their annual mileage and paid at the VED renewal. Costs are 3 pence per mile driven, so for people travelling 10,000 miles in an electric car, the charge will be £300 in eVED.
This seems a lot, and it is certainly making people think twice about switching to an electric car, but even at this cost, it is still less expensive than fuel duty costs for the same period. And there is a significant difference, because VAT is added on to Fuel Duty, but it isn’t added on to eVED. For now, at least.
Below illustrates the taxes accrued for electric cars, petrol, diesel and hybrid cars and plug-in hybrid cars. All assume that each covers 10,000 mile per year, with each qualifying for the Expensive Car Supplement to illustrate the highest possible costs.
Simply deduct £440 from each one to exclude this cost.
Lastly, I have left out VAT on the untaxed proportion of the fuel to balance that with public charging VAT at the same rate, albeit home charges accrue only 5% VAT.
Electric Vehicle Taxes
The potential for an EV driver that has a car that costs £50k or more, that was first registered on, or after, 01 April 2025, who covers 10,000 miles per year, could see the following taxation applied:
VED: £200 per year
Expensive Car Supplement: £440 per year
eVED (Pay-per-Mile): £300 per year
Total combined taxation charges 2028: £940 per year
Petrol Fuel Duty Costs
Based on a petrol price of 151p per litre, for a petrol car covering 10,000 miles per year, averaging 40 mpg over a 12 month period, the following taxes apply:
Fuel Duty Cost: £601 per year
VAT Charges on Fuel Duty: £120 per year
VED: £200 per year
Expensive Car Supplement: £440 per year
Total Potential Taxation Charges Combined 2026: £1361
Note: From March 2027, Fuel Duty will increase by 5p per litre adds a further £68 per year to the above bill. As yet, there is no confirmation of fuel duty rises for the fiscal year 2028 - 2029.
Total bill for 2027: £1,429 per year
Diesel Fuel Duty Costs
Based on diesel at 167p per litre, for a car covering 10,000 miles per year, averaging 45 mpg over a 12 month period, the following taxes apply:
Fuel Duty Cost: £535 per year
VAT Charges on Fuel Duty: £107 per year
Total Fuel taxes per year: £642 per year
VED: £200 per year
Expensive Car Supplement: £440 per year
Total combined taxes for 2026: £1,282 per year
Note: From March 2027, Fuel Duty will increase by 5p per litre adds a further £60 per year to the above bill. As yet, there is no confirmation of fuel duty rises for the fiscal year 2028 - 2029.
Total bill for 2027: £1,342 per year
Plug-in-Hybrid Fuel Duty Taxes and Costs
I feel plug-in-hybrids get the worst of both world treatments, because the same taxes apply at the same level for hybrids, but they will also accrue a pay-per-mile charge levied at 1.5p per mile. We’ll use the same 10,000 miles per year and assume the car cost over £40,000 and was registered on or after 01 April 2017.
Using real-world data, and not WLTP, or manufacturers claimed efficiency, but aggregated data taken from real use cases, plug-in-hybrids average 60 mpg.
Fuel Duty Cost + VAT: £481 per year
eVED (pay-per-mile) charges: £150
VED: £200 per year
Expensive Car Supplement: £440 per year
Total combined taxes for 2026: £1,271 per year
Total bill for 2027: £1,316 per year
The incentive for owners of PHEV’s will be to plug them in as frequently as possible to avoid as much Fuel Duty Expense, and to take advantage of a lowe eVED bill compared to pure battery electric cars.
Difference in costs range from EVs being £376 less expensive to tax, and up to £489 less expensive to tax.
Some Observations
Petrol is the most Taxed
My first observation is the worst car for paying taxes is the humble petrol car being potentially clobbered for up to £1,429 in taxes for fiscal year 2027-2028. This is extraordinary given that diesel cars and plug-in hybrids are so closely aligned with only £26 between them in annual tax charges.
Fuel Duty
After the 5p per litre Fuel Duty rise, and the additional VAT collected on that, Fuel Duty will rise in line with RPI inflation for every year after fiscal year 2026 -2027, meaning fuel duty will cost 59.7p per litre in fiscal year 2027 - 2028 if inflation is measured at 3%, for example.
Sliding Scale of VAT both Adds and Deducts Costs
With the increase in prices at the pumps recently, revenue from VAT has increased, with some estimates placing this as an extra £670 million in revenue collected by HM Treasury. That’s an increase in tax taken from the public levied at petrol and diesel drivers.
However, when prices fall, so does HM Treasury revenue, but their projections from the prior year will not account for the above windfall, and that windfall is not passed back to motorists.
EVs Give and Take
With the Electric Car Grant, qualifying cars will receive either a £3,750 discount, a £1,500 discount, or no discount thanks to the Government’s generosity, and this grant is due to end on 31 March 2030.
The annual cost of the electric car grant is thought to be around £300 million per year.
The OBR estimates the VED collection for EVs is £400 million per year and eVED will add £1.1 billion in its first year.
And finally, the Government expects to collect upto £60 million per year for the Expensive Car Supplement levied on EVs.
It’s evident that the Electric Car Grant costs will be more than recouped with the Government gaining a net £1.26 billion in tax revenue for the fiscal year 2028 - 2029. After 2030 when the Electric Car Grant ends, the revenue will increase significantly, but there is no proposal to pass those savings on to drivers.
eVED Process
The proposed process to pay for eVED takes a three-step approach:
Submit Current Odometer Reading: Drivers enter their car’s current mileage when logging into the DVLA vehicle tax renewal service.
Estimate the Year Ahead: Drivers declare how many miles they expect to drive over the next 12 months.
Pay the Bill: The DVLA calculates an upfront cost based on that estimate. Motorists can choose to pay this in a single annual lump sum, bi-annually, or via monthly direct debits
How Mileage Checks and Verification Will Work
To ensure drivers do not underreport their mileage, the government has established two primary validation checks:
The Annual MOT (Cars over 3 years old): For most cars, mileage checks require no extra paperwork. The DVLA will automatically cross-reference user-submittedmileage with the odometer data recorded digitally by the MoT centre during the car's annual MOT inspection.
Newer Cars (Under 3 years old): The government has scrapped plans for mandatory mid-year physical inspections for newer cars. Instead, owners of newer vehicles will be required to self-report their odometer readings at renewal. However, the DVLA retains the legal right to order an audit if they suspect fraud.
Connected Car Technology (Optional): The government is developing a voluntary scheme allowing connected vehicles to transmit mileage data securely and directly to the DVLA via the car's built-in internet connection, eliminating manual entry. And this is where people have concerns over privacy, with vehicles effectively being tracked to obtain mileage data, with the concern it will be mandatory at a future point.
Note 1: eVED will also increase in cost in line with CPI measured inflation, just as Fuel Duty will increase, keeping both in step, with costs remaining lower for electric cars.
Note 2: Fuel Duty is to be increased inline with RPI measured inflation each year, meaning larger increases will be levied on petrol, diesel, hybrid and plug-in-hybrid cars.
The Black Hole
It is estimated that by 2030, if the Governments EV targets have been met, they will see a shortfall of £13 billion in revenue at the pumps. The long-term forecast is for that number to reach a £31 billion shortfall once the transition to EVs has concluded.
And with every combustion car sent to the scrap year, replaced with an EV, the Treasury has calculated they will lose £700 in revenue per combustion vehicle displaced.
Conclusion
Taxation on motorists is increasing, and significantly so for electric cars, but they will still remain the least expensive option for being taxed. When factoring in their lower running costs, lower service and maintenance costs, and significantly lower on fuel costs (if electric car drivers can charge at home on a time-of-use tariff), EVs will remain the cheapest option. However, this message is not coming across loud and clear.
The gap between EV taxes and Internal Combustion and PHEV taxes will widen with the lower calculated CPI rated inflation being levied on eVED, and the more costly RPI inflation being levied on Fuel Duty.
It still saves money for EVs, but the unclear messaging around this with incentives up front and taxation far surpassing that collected thereafter, means that EV drivers not only pick up the tab for the Electric Car Grant, but pay it back with interest indefinitely.
However, with the large black hole in U.K. PLC finances looming, one thing is certain and that Fuel Duty and eVED will rise to compensate. But there’s a balance to be had because, tax too much and the system crumbles. Tax too little and the Government will tax something else.
I had hoped the UK Government would have a clear, simple, and defined strategy to onboard more drivers into electric cars, but there is so much added complexity and cost calculations to be considered, with the messaging not being clear.
The Government will undoubtedly have a black hole to cover, but it almost appears there’s a paradox with an event horizon approaching in 2035, because it appears the Government are both actively slowing down that transition, whilst whacking a stick at manufacturers to sell more EVs.
And with that, the Government is sending out very confusing signals to the industry, with yet another challenge to face at a time when so many manufacturers are suffering financially.
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About the Author
Graeme Cobb is a lifelong car enthusiast with a passion for writing about cars, EVs, industry updates and more. You can find Graeme on 𝕏 at @graeme_cobb
