Pay-Per-Mile Road Tax UK 2025: What It Means For Electric Car Drivers

Source: Shutterstock

Key Insights

• Recent headlines have reignited pay-per-mile speculation as the Chancellor faces a £25 billion fuel duty revenue challenge, but implementation barriers - including privacy concerns, regional fairness, and public opposition - make widespread distance-based charging unlikely in the near term.
• Electric vehicle drivers now pay Vehicle Excise Duty (VED) from April 2025 (£10 first year, £195 annually thereafter), representing the government's actual approach to EV taxation rather than speculative pay-per-mile schemes.
• Electric car salary sacrifice schemes remain exceptionally tax-efficient in 2025/26, with the 3% Benefit-in-Kind rate and 20-50% cost savings making EVs the smart choice regardless of future road pricing speculation.
• Even if pay-per-mile were introduced, it would likely apply to all vehicles rather than targeting EVs specifically, and would require extensive technological infrastructure and consultation that doesn't currently exist.

The Latest Pay-Per-Mile Headlines: What's Really Happening?

Pay-per-mile road tax has returned to the news cycle in early 2025, with speculation that the Chancellor could announce distance-based charging to replace declining fuel duty revenue. At The Electric Car Scheme, we're committed to cutting through the speculation and helping you understand what these discussions actually mean for UK drivers - especially those considering an electric car salary sacrifice scheme.

The reality? Pay-per-mile road tax faces the same substantial barriers that have prevented its implementation for over 15 years, while the government has instead introduced tangible, modest changes to EV taxation that still leave electric vehicles as the most cost-effective option.

Understanding the Fuel Duty Revenue Challenge

As more drivers switch to electric vehicles, the government faces a genuine fiscal challenge. Fuel duty currently generates around £25 billion annually for the Treasury - a substantial sum that will naturally decline as EV adoption accelerates toward the government's zero-emission vehicle mandate targets (22% of sales in 2025, rising to 80% by 2030).

However, this challenge isn't new. Governments have discussed alternative road pricing mechanisms for well over a decade, with various schemes proposed but never implemented.

What's Actually Changed for Electric Car Drivers in 2025?

Rather than implementing speculative pay-per-mile schemes, the government has introduced tangible changes to EV taxation that take effect from April 2025:

Vehicle Excise Duty (VED) for Electric Vehicles

From 1 April 2025, electric car drivers now pay Vehicle Excise Duty for the first time:

• First year rate: £10 for new electric cars registered from 1 April 2025

• Standard rate: £195 annually from the second year onward

• Pre-2025 EVs: Electric cars registered between 1 April 2017 and 31 March 2025 will pay the standard rate of £195

The Expensive Car Supplement

For electric vehicles with a list price exceeding £40,000, an additional Expensive Car Supplement of £410 applies for five years from the second year of registration. This supplement affects many popular EV models but is included in salary sacrifice calculations, ensuring transparency for employees.

Benefit-in-Kind Rates Remain Favourable

Despite VED changes, Benefit-in-Kind rates for electric vehicles remain extraordinarily attractive:

• 2025/26: 3% BiK rate

• 2026/27: 4% BiK rate

• 2027/28: 5% BiK rate

• Confirmed through 2029/30: Protected rates provide long-term certainty

This compares to up to 37% BiK for high-emission petrol cars, making electric car salary sacrifice the most tax-efficient way to access a new electric vehicle.

Why Pay-Per-Mile Road Tax Remains Unlikely

Several factors make widespread pay-per-mile road pricing politically and practically challenging:

1. Implementation Costs and Complexity

Any distance-based system would require:

• Tracking technology installed in every vehicle across the UK

• Sophisticated number plate recognition systems covering the entire road network

• Integration with existing taxation systems

• Substantial upfront investment running into billions of pounds

2. Historical Public Opposition

Previous government proposals for road pricing have faced overwhelming resistance from motoring groups and the general public. The 2007 national road pricing petition attracted over 1.8 million signatures—the largest petition response the government had received at that time.

Source: Shutterstock

3. Privacy Concerns

Distance-based charging raises significant concerns about:

• Vehicle movement tracking and data storage

• Government surveillance of driving patterns

• Data security and potential misuse

• GDPR compliance and individual privacy rights

4. Regional Fairness Issues

Pay-per-mile taxation would disproportionately impact:

• Rural communities: Limited public transport alternatives mean higher dependency on vehicles

• Remote workers: Those commuting from areas with poor connectivity

• Lower-income drivers: Those who cannot afford to live near employment centres

The government's approach has instead focused on gradually adjusting existing taxation structures- like the VED changes - rather than revolutionary new systems.

How Speculation Affects Electric Vehicle Adoption

"While we're keeping a close eye on potential changes like pay-per-mile taxation, it's crucial to remember that the overall financial picture for electric vehicles remains very positive," Thom Groot emphasises. "Between lower fuelling costs, reduced maintenance needs, and significant tax advantages, electric vehicles continue to offer compelling value for UK drivers."

Some potential EV buyers delay their switch due to uncertainty about future taxation. However, this wait-and-see approach means missing out on guaranteed savings available today through salary sacrifice electric car schemes.

Electric Car Salary Sacrifice: The Numbers in 2025/26

Despite speculation about future taxation, salary sacrifice schemes remain exceptionally attractive. Consider a typical calculation for a mid-range electric car through The Electric Car Scheme:

Monthly Breakdown:

• Monthly salary sacrifice amount (inc VAT): £584

• Employee income tax savings (40% bracket): £234

• Employee National Insurance savings: £12

• Average Benefit-in-Kind tax over term: £55

• Net monthly cost to employee: £393

Even with the addition of £195 annual VED (approximately £16 per month), the savings remain substantial compared to traditional vehicle financing or high-BiK petrol company cars. This represents a saving of 20-50% compared to personally leasing or buying an equivalent electric vehicle.

Additional Cost Advantages

Beyond the salary sacrifice savings, electric vehicle drivers benefit from:

• Fuel savings: EV drivers save £600-£1,500 annually compared to petrol or diesel vehicles for a typical 10,000-mile journey

• Maintenance costs: Approximately 50% lower than petrol or diesel vehicles

• Charging at home: Costs as little as 7p per mile compared to 19-21p per mile for petrol

• ULEZ exemption: Free access to Ultra Low Emission Zones until December 2025

Learn more about how much it costs to fully charge an electric car at home and explore our comprehensive EV charging guide.

The Reality of UK EV Taxation Policy

Source: Shutterstock

The UK government has consistently demonstrated its commitment to supporting electric vehicle adoption through fiscal incentives rather than penalties. The zero-emission vehicle mandate requires manufacturers to sell specific percentages of EVs:

• 2025: 22% of sales must be zero-emission vehicles

• 2030: 80% of sales must be zero-emission vehicles

• 2035: 100% of new cars must be zero-emission vehicles

Tax structures continue to heavily favour electric cars, with BiK rates confirmed at just 3% for 2025/26—far below the maximum 37% for high-emission vehicles.

If Pay-Per-Mile Were Introduced: What to Expect

Should any form of distance-based charging materialise in the future, it would likely:

Apply to All Vehicles

Any pay-per-mile system would need to apply universally rather than targeting EVs specifically. The fiscal challenge comes from declining fuel duty across all vehicle types as efficiency improves and EV adoption increases.

Include Variable Rates

Fair implementation would require:

• Different rates for different vehicle types or emissions levels

• Rural discounts or exemptions to address regional fairness

• Time-of-day pricing to manage congestion

• Exemptions or reduced rates for essential workers

Require Extensive Consultation

Before implementation, the government would need to:

• Conduct public consultations and impact assessments

• Trial schemes in specific regions or with volunteers

• Develop and test the necessary technological infrastructure

• Address privacy concerns and data protection requirements

This process would take years rather than months, providing ample time for drivers to adapt.

Should You Wait or Switch to Electric Now?

Source: Shutterstock

If you're considering an electric car through salary sacrifice, waiting for clarity on speculative future taxation means missing out on guaranteed savings available today.

Reasons to Switch Now

Immediate Financial Benefits:

• 3% BiK rate confirmed for 2025/26

• 20-50% cost reduction through salary sacrifice

• Substantial fuel and maintenance savings

• Protected tax advantages through to 2029/30

Long-term Value:

• Electric vehicles retain value well as infrastructure improves

• Growing charging infrastructure (66,779+ public charging points across the UK)

• Increasing EV ranges (average 212 miles per charge)

• Future-proofing against 2030 petrol/diesel ban

Environmental Impact:

• Immediate carbon footprint reduction

• Support for UK net zero goals

• Contribution to cleaner air quality

• ULEZ exemption benefits

The Mathematics of Waiting

Delaying your switch to electric means:

• Continuing to pay higher fuel costs (£600-£1,500 more annually)

• Missing out on salary sacrifice tax savings

• Higher maintenance costs on traditional vehicles

• Exposure to increasing fuel duty and emission-based taxes

For most UK drivers who travel an average of 20 miles per day, even modest EV ranges are more than adequate. Explore our guide on optimising your electric car's range for maximum efficiency.

Understanding the Broader EV Cost Picture

When evaluating whether to switch to an electric vehicle, it's essential to consider the total cost of ownership rather than focusing solely on potential future taxation.

Upfront Costs Through Salary Sacrifice

While electric cars typically cost more upfront than petrol equivalents, salary sacrifice dramatically reduces this barrier:

• Nissan Leaf available from £275/month through salary sacrifice

• Tesla Model 3 with 20-50% savings compared to personal lease

• Volkswagen ID.3 accessible to employees earning £28,000+

Running Costs Comparison

Cost Category	Petrol/Diesel	Electric Vehicle	Annual Saving
Fuel (10,000 miles)	£1,450	£780	£670
Servicing	£205	£165	£40
Road Tax (2025/26)	£195	£195	£0
BiK (company car)	Up to 37%	3%	Significant
Total Advantage			£700+ annually

These figures demonstrate why electric vehicles remain the economical choice even with modest VED contributions.

Workplace Benefits and Employer Advantages

For employers considering offering an electric car salary sacrifice scheme, the benefits extend beyond employee satisfaction:

For Employers

• No net cost: Schemes typically cost nothing to implement

• ESG improvements: Demonstrate commitment to sustainability goals

• Talent attraction: Competitive employee benefits package

• Employer Protection: Complete protection from day one against early termination costs

For Employees

• Immediate savings: 20-50% reduction compared to personal leasing

• Inclusive package: Insurance, maintenance, and breakdown cover included

• Home charger options: Installation can be bundled into the scheme

• Charge Scheme access: Save 20-50% on EV charging costs

Discover more about workplace charging benefits and how they complement salary sacrifice schemes.

Alternative Taxation Scenarios and Future-Proofing

While pay-per-mile dominates headlines, other taxation approaches might emerge:

Potential Alternatives

Increased VED Rates: More likely than pay-per-mile, but still provides certainty and predictability for budgeting.

Congestion-Based Charging: Expansion of London ULEZ-style zones to other cities, though EVs would likely retain exemptions or reduced rates.

Dynamic Pricing: Time-of-day or location-based charges, potentially integrated with smart charging infrastructure.

Workplace Parking Levies: Some cities already implement parking charges for employers, though this impacts all vehicles equally.

Whatever form future taxation takes, electric vehicles are likely to maintain preferential treatment as the government pursues its net zero commitments.

Real-World Impact: Case Studies

Rural Driver Scenario

Profile: 12,000 annual miles, 40% taxpayer, rural location Vehicle: Nissan Leaf through salary sacrifice

Annual costs:

• Salary sacrifice net cost: £3,600

• Home charging (off-peak tariff): £540

• VED: £195

• Total: £4,335

Compared to petrol equivalent:

• Personal lease: £4,800

• Fuel: £1,740

• Servicing: £205

• VED: £195

• Total: £6,940

Annual saving: £2,605 (even with pay-per-mile at 15p would still save £805)

Urban Commuter Scenario

Profile: 8,000 annual miles, 20% taxpayer, urban location Vehicle: Volkswagen ID.3 through salary sacrifice

Annual costs:

• Salary sacrifice net cost: £2,880

• Mixed charging (home/public): £480

• VED: £195

• Total: £3,555

Compared to petrol equivalent:

• Personal lease: £3,600

• Fuel: £1,160

• Parking permits (EV discount): £80 vs £160

• VED: £195

• Total: £5,115

Annual saving: £1,560 (even with pay-per-mile at 15p would still save £360)

These real-world examples demonstrate that even if pay-per-mile were introduced at the speculated 15p rate, electric vehicles through salary sacrifice would remain financially advantageous.

How The Electric Car Scheme Protects Your Investment

At The Electric Car Scheme, we provide additional protections regardless of future taxation changes:

Fixed-Term Certainty

Salary sacrifice agreements typically run for 2-4 years with fixed monthly costs, providing:

• Protection against mid-term price increases

• Guaranteed BiK rates for the agreement duration

• Known, predictable monthly costs

• No surprise taxation changes during your term

Comprehensive Package

Everything included in one monthly payment:

• Vehicle lease

• Insurance

• Maintenance and servicing

• Breakdown cover

• Home charger installation (optional)

• Road tax (VED)

Flexibility Options

• Early termination protection for life changes

• Vehicle upgrade options at agreement end

• Used electric car options for budget-conscious drivers

• Wide range of manufacturers and models available

Taking Action: Your Next Steps

Ready to explore electric vehicle ownership through salary sacrifice? Here's how to get started:

For Employees

1. Check eligibility: Use our salary sacrifice calculator to see potential savings

2. Browse vehicles: Explore our range of available electric cars

3. Speak with HR: Ask if your employer offers The Electric Car Scheme

4. Request employer signup: If not available, request your employer book a demo

For Employers

1. Book a demo: See how the scheme works for your business

2. Review benefits: Understand the zero-cost implementation

3. Launch scheme: Simple setup with dedicated support

4. Promote to staff: Communication materials provided

The Bottom Line: Focus on What's Real, Not Speculation

Pay-per-mile road tax makes occasional appearances in political discussion but faces significant implementation barriers that have prevented progress for over 15 years. Meanwhile, the actual changes to EV taxation - modest VED contributions from April 2025 - still leave electric cars as the most cost-effective option for UK drivers.

For employees considering an electric car salary sacrifice scheme, the mathematics remain compelling:

✓ Protected low BiK rates through to 2029/30
✓ Substantial tax savings of 20-50% through salary sacrifice
✓ Dramatically lower running costs (£600-£1,500 annual fuel savings)
✓ Fixed monthly payments protecting against taxation uncertainty
✓ Comprehensive package including insurance, maintenance, and breakdown cover

The case for switching to electric has never been stronger—regardless of what might happen with road pricing in the distant future.

As Thom Groot concludes: "Don't let speculation about future taxation delay your switch to electric. The savings available today through salary sacrifice, combined with lower running costs and environmental benefits, make electric vehicles the smart choice for UK drivers in 2025 and beyond."

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Frequently Asked Questions

Will pay-per-mile road tax definitely be introduced?
No official confirmation exists. The government has discussed road pricing for over 15 years without implementation due to complexity, privacy concerns, and public opposition. Current changes focus on introducing modest VED for EVs instead.

How much does road tax cost for electric cars in 2025?
From April 2025, new EVs pay £10 in the first year, then £195 annually. Vehicles over £40,000 also pay a £410 Expensive Car Supplement for five years from year two.

Does salary sacrifice still save money with the new road tax?
Yes. Even with VED, salary sacrifice schemes save 20-50% compared to personal leasing through pre-tax deductions and the 3% BiK rate. Road tax is included in comprehensive monthly costs.

Would pay-per-mile affect electric cars more than petrol cars?
No. Any distance-based system would likely apply to all vehicles, not target EVs specifically. EVs would probably retain preferential rates to support government net zero goals.

Should I wait to get an electric car until taxation is clearer?
No. Waiting means missing guaranteed current savings (£600-£1,500 annual fuel savings, 20-50% salary sacrifice savings) for speculative future changes that may never materialise. Current tax advantages are confirmed through 2029/30.

How does The Charge Scheme help with running costs?
The Charge Scheme allows employees to salary sacrifice EV charging costs, saving 20-50% on charging at home, at work, or in public—further reducing the total cost of EV ownership.

What happens if tax rules change during my lease?
Salary sacrifice agreements have fixed terms (2-4 years) with known monthly costs. You're protected against mid-term changes. At renewal, new agreements reflect current taxation—giving you a fresh decision point.

Ready to explore your savings?
Use The Electric Car Scheme's calculator to see how much you could save through salary sacrifice, or discover our guide to the best electric cars to salary sacrifice in 2025.

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Last updated: 28/10/2025

Our pricing is based on data collected from The Electric Car Scheme quote tool. All final pricing is inclusive of VAT. All prices above are based on the following lease terms; 10,000 miles pa, 36 months, and are inclusive of Maintenance and Breakdown Cover. The Electric Car Scheme’s terms and conditions apply. All deals are subject to credit approval and availability. All deals are subject to excess mileage and damage charges. Prices are calculated based on the following tax saving assumptions; England & Wales, 40% tax rate. The above prices were calculated using a flat payment profile. The Electric Car Scheme Limited provides services for the administration of your salary sacrifice employee benefits. The Electric Car Scheme Holdings Limited is a member of the BVRLA (10608), is authorised and regulated by the FCA under FRN 968270, is an Appointed Representative of Marshall Management Services Ltd under FRN 667174, and is a credit broker and not a lender or insurance provider.

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