Pay per Mile Road Tax for Electric Cars

How the 2025 Pay-per-Mile Road Tax Will Affect You

On 26 November 2025, the UK Government unveiled a landmark change to motoring taxation under the 2025 Autumn Budget: the introduction of a pay-per-mile road tax for electric vehicles (EVs) and plug-in hybrids (PHEVs). This measure, intended to replace falling fuel duty revenues, means that from 2028 EV and hybrid owners will no longer enjoy the same low ongoing tax costs they are used to.

For drivers in Manchester and across the UK, this is a major shift. As an accounting & advisory firm, we believe it’s vital to explain exactly what pay-per-mile means, how it will work, who it affects, and how you can plan, legally and financially, for the change.

In this article, we answer all the “what’s, how’s and why’s” about pay-per-mile road tax, and highlight practical steps drivers and businesses should take to minimise impact and stay compliant.

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What Is Pay-per-Mile Road Tax and Why Has It Been Introduced?

The new system, often referred to as eVED (Electric Vehicle Excise Duty), will apply a per-mile charge to zero-emission and plug-in hybrid vehicles. Under the plan:

• EV drivers will be charged 3p per mile driven.
• PHEV drivers will pay 1.5p per mile.
• This charge will be in addition to existing Vehicle Excise Duty (VED), not a replacement.
• The system is due to begin in April 2028, after planned legislation.

Why Has the pay-per-Mile been introduced?

• Fuel duty, traditionally collected from petrol and diesel has been the main source of road tax revenue. However, as EV adoption accelerates, fuel duty revenues are falling sharply. The pay-per-mile approach aims to ensure all road users contribute fairly to infrastructure maintenance.

• Additionally, the Government has committed to investing part of the revenue from this new tax into road maintenance and infrastructure £2 billion annually by 2029–30.

• In short: if you drive, you pay. And under pay-per-mile, your contribution depends on how much you drive, not what you burn at the pump.

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Who Does Pay per mile for electric Car’s Affect And When?

Affected Vehicles

• Battery Electric Vehicles (EVs)
• Plug-in Hybrid Electric Vehicles (PHEVs)

Traditional petrol and diesel vehicles remain under the existing fuel duty and VED model at least for now.

Timeline

• Legislation phase: 2026–2027 (expected)
• Implementation date: April 2028 for eVED pay-per-mile tax

Additional Charges (for EVs/PHEVs)

• Standard VED (£195 per year from 2025 for many EVs)
• Any applicable Expensive Car Supplement (if list price above threshold)
• New mileage tax (3p or 1.5p per mile) on top of VED

Hence, EV/PHEV owners will likely not enjoy the “free” road tax many assumed when switching from petrol/diesel.

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How the Pay-per-Mile System Would Work?

Although full legislation isn’t yet finalised, current proposals suggest:

• Mileage logged via odometer checks, potentially at MOTs or annual checks
• Drivers or fleet operators self-report or use approved systems for verification
• Pre-payment options where drivers estimate annual mileage at the start of the year, pay a base amount, and settle a reconciliation if actual mileage differs

This approach avoids intrusive GPS tracking but still aims for accurate reporting. The Government emphasises that the system must be transparent, fair, and minimally burdensome.

Nonetheless, practical issues remain under discussion:

• How mileage outside the UK will be treated
• How to verify mileage without excessive checks
• Data privacy and administrative overhead
• Inflation adjustments (per-mile charge likely to rise annually with CPI)

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What Will the Pay-per-Mile for Electric Cars Cost

Worked Examples: To understand the impact, here are some rough examples:

Annual Miles Driven	Vehicle Type	Pay-per-Mile Charge	Estimated Annual Cost*
8,000 (average)	EV	3p/mile	£240 (plus £195 VED) = £435 total
8,000	PHEV	1.5p/mile	£120 (plus VED)
4,000 (low use)	EV	3p/mile	£120 (plus VED)

*These are estimates based on current rates and typical VED. Extra costs like Expensive Car Supplement may apply.

As a comparison: a petrol or diesel car driver may pay more in fuel duty + fuel itself, but EV/PHEV drivers will no longer enjoy “free road tax.”

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Why the Government Believes Pay-per-Mile Is Fair

Government’s Rationale

• Revenue shortfall: Fuel duty receipts have fallen sharply as EV adoption rises. Pay-per-mile recoups those lost funds while still charging fairly according to usage. Fleet News+1
• Road maintenance funding: The new tax will fund essential upkeep and improvement of UK roads benefiting all drivers, not just EV owners. Highways Magazine
• Fairness and neutrality: Under this system, heavy users pay more, light users pay less aligning costs with road usage, not vehicle type.

Criticisms and Concerns

Critics argue:

• Deterrent to EV adoption – additional costs may undermine the transition to clean vehicles.
• Unfair on high-mileage drivers – especially those with long commutes or frequent travel.
• Reporting and privacy concerns – even though no GPS is required, mileage tracking introduces new administrative burdens.
• Complexity for hybrid owners – hybrids may still pay fuel duty for petrol miles and mileage tax for all miles.

Despite these concerns, the Government seems set on roll-out, meaning planning now is essential.

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What It Means for Manchester Drivers, Fleets and Businesses

For Private EV/PHEV Owners

If you live or commute in Manchester:

• Budget for £200–£300+ per year extra (depending on mileage)
• Re-evaluate whether EV savings on fuel offset the new mileage tax
• Consider consolidating trips, car-sharing or shifting to public transport occasionally

For SMEs, Contractors & Delivery Fleets

If you run a business using EVs/PHEVs:

• Mileage-based costs become variable annual running costs
• VAT, VAT recovery, accounting for mileage tax — your financial review must include this new variable
• For high-mileage fleet vehicles, the additional cost could substantially impact profitability

For Accountants, Payroll & Company Vehicles

Businesses that claimed fuel duty benefit (e.g. via mileage reimbursement) must review:

• How mileage costs affect expense claims
• Whether mileage reimbursement rates need adjusting
• How to track company mileage accurately
• Annual budgeting for staff mileage claims

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Pay-per-Mile electrics Cars – What You Should Do Next:

5 Practical Steps for 2026–2028

1. Estimate your average annual mileage and run scenarios to see how much eVED will cost you.
2. Review your vehicle usage if you can reduce mileage or consolidate journeys, do so.
3. Plan ahead for the first eVED year (2028) set aside a small monthly fund to spread the cost.
4. Prepare proper mileage tracking keep accurate logs, receipts, and consider digital tracking tools if you use multiple vehicles.
5. Seek professional financial advice, especially if you’re a business owner, eVED changes your expenses, cashflow and tax calculations.

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Why Manchester Businesses Should Talk to Accounting Solutions Manchester

At Accounting Solutions Manchester, we are already preparing for the arrival of pay-per-mile taxation. We understand how this will affect:

• Private EV/PHEV owners
• SMEs with company cars
• Contractors, delivery fleets, and those claiming mileage

Our services include:

• Budget and cash-flow forecasting including new mileage tax
• Advice on vehicle cost vs benefit for companies
• Support with mileage logging and accounting compliance
• Guidance on VAT, expenses, and benefit-in-kind implications

We combine local Manchester knowledge with up-to-date tax and motoring legislation helping you plan ahead, stay compliant, and avoid unpleasant surprises.

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