Chancellor Rachel Reeves is facing mounting pressure from the UK car sector to increase the threshold for the luxury car tax ahead of tomorrow’s Spring Statement.
Industry leaders have called for the Expensive Car Supplement threshold to be raised from its current level of £40,000 to better reflect the reality of the electric vehicle market, with experts warning that the current measure risks impacting 80 per cent of the sector in the future.
The Expensive Car Supplement, which is often referred to as the “luxury tax”, was introduced in 2017 for internal combustion engine vehicles costing more than £40,000. It is set to apply to electric vehicles from April 2025.
However, the Government previously acknowledged the “disproportionate impact” of the threshold on drivers looking to buy zero emission vehicles.
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Experts have called for the luxury car tax threshold to be increased to £60,000
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The £40,000 threshold includes optional extras and is based on the manufacturer’s list price, not the actual price paid by customers.
Currently, the surcharge costs £410 annually for five years, starting from the vehicle’s first registration, but will rise to £425 from April, significantly impacting fleets.
Additionally, first-year Vehicle Excise Duty rates for battery electric vehicles will increase from £0 to £10, while plug-in hybrids emitting between one and 50g/km of CO2 will see rates rise from £0 to £110.
Second-year rates for battery electric vehicles will jump more dramatically from £0 to £195 and will be applied retrospectively.
Analysis from vehicle leasing company Alphabet revealed the stark reality of the EV market, with just 19 per cent of electric cars currently priced below the £40,000 threshold.
The average P11D value across all quotable vehicle types is £51,855, which is already 25 per cent above the current threshold, according to the leasing company.
For electric vehicles specifically, the situation is more pronounced, with the average list price reaching £60,273, Fleet News reported.
In response, Alphabet has now urged the Government to increase the threshold to £60,000 for electric vehicles in a bid to stop millions of drivers from being negatively impacted by the changes over the coming years.
Meanwhile, the Association of Fleet Professionals has warned that some fleets will see their liability on widely adopted EVs rise from zero to £2,490 per vehicle over a five-year period.
This significant increase comes as a result of the new tax regime being applied to electric vehicles. The Government has recognised this could pose a problem for the EV market.
They had previously indicated they would consider raising the threshold at a future fiscal event to make it easier to buy electric cars.
Appearing on a recent tax webinar organised by the AFP, Harvey Perkins, tax expert and co-founder of HRUX, suggested the Chancellor may address the issue in her upcoming Spring Statement, saying: “There’s a chance that there will be a change regarding the expensive supplement.”
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A number of crucial car tax changes will be introduced on April 1
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However, the Treasury has downplayed expectations, stressing the Spring Statement is “definitely not a Budget” with few new policies anticipated.
The announcement comes against the backdrop of a faltering economy, leaving uncertainty about how comprehensive any potential changes might be. Industry experts warn that the new tax could negatively impact EV adoption rates in both new and used car markets.
Paul Holland, managing director for UK/ANZ Fleet at Corpay, added: “At a time when businesses need cost-effective options to transition to electric vehicles, further price hikes could delay adoption.”
