Tax for drivers featured heavily in the chancellor’s Autumn Budget 2025, with electric vehicles (EV) receiving the most drastic changes. But fuel duty, luxury car taxes, and fuel cost transparency featured significantly in the update.
Find out what financial impact these changes could have on your business and how to budget for any increased costs.
Electric vehicles receive tax hikes and reliefs
A “mileage-based charge” on battery electric and plug-in hybrid cars will be introduced from April 2028. The mileage-based charge is £0.03 (three pence) per mile for fully electric vehicles and £0.015 (1.5 pence) per mile for hybrid vehicles.
According to the Office for Budget Responsibility (OBR), which works out to an additional £255 a year for a vehicle driving 8,500 miles. This amounts to roughly half the rate of fuel duty tax paid by non-EVs annually.
As more people transition to using EVs, the government will receive less tax revenue from fuel duty, so this new charge on EVs might go towards replacing some tax income for the government. The OBR forecasts the change will generate £1.1 billion in its first year.
EV adoption will continue to be incentivised
Despite the higher level of taxes for EVs, the government is still encouraging motorists to make the switch, with further investment going into EV grants and charging point infrastructure.
EVs will get a higher ‘luxury car tax’ threshold to try and offset the new mileage-based charge. The Expensive Car Supplement (ECS) is a tax placed on cars with a list price in excess of £40,000. It adds an extra £425 a year on top of the standard tax rate for five years.
From April 2026, the ECS threshold for EVs will increase to £50,000, meaning fewer cars will fall into this category.
The Electric Car Grant is receiving £300 million in additional funding so it can continue until 2030. The grant gives a discount of up to £3,750 off the list price of eligible EVs.
And £200 million will go to EV charging infrastructure roll-out, as well as 100 per cent business rate relief on charge point operators for the next ten years.
Fuel duty frozen until September 2026
The fuel duty freeze will now end in September 2026 instead of March. But the current fuel duty rate of 52.95 pence a litre is set to increase gradually – and eventually rise in line with inflation from April 2027.
The current 5p cut saves motorists £3.30 a tank, according to AA president Edmund King. While drivers will be relieved it’s continuing five months longer, they should plan for the eventual rise in fuel costs.
RAC Head of Policy, Simon Williams, said: “Without the discount, drivers would still be paying more for a litre of petrol than they were prior to Russia’s invasion of Ukraine in February 2022, which sent pump prices rocketing to record levels.
“The introduction of the long-awaited Fuel Finder in early 2026 will also be a big moment – for the first time, all petrol stations will need to report their prices allowing customers to find the cheapest fuel wherever they are.”
Fuel Finder to be introduced from 2026
In an effort to counteract a sharp rise in fuel prices, the government is introducing Fuel Finder from early 2026. This initiative will make petrol stations report their fuel prices to apps, comparisons websites, and even sat navs.
The idea is to give drivers full transparency on fuel prices in their area, so they can get the best deal. But also stimulate more competitive prices between fuel stations.
The concern from the government is that fuel retailers don’t always pass on better prices to consumers, even when their fuel costs decrease. With the Fuel Finder, they’ll need to keep their prices inline with other stations or risk being deemed too expensive.
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