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Treasury dealt blow as thousands of EV drivers use tax loophole

Newsletter issue – December 2025

Electric vehicle drivers exploited a loophole to secure another year of tax-free motoring, costing the Treasury millions. Early renewals surged by 1,400% compared to the previous year, costing the Treasury about £30 million in lost revenue.

Around 300,000 electric car owners renewed their registrations early with the DVLA before April 2025. This allowed them to avoid the new Vehicle Excise Duty (VED) charge of £195 per year that applies to EVs registered after 2017 once their first year exemption ends.

The National Audit Office (NAO) criticised the DVLA for failing to anticipate the rush. It argued that better planning could have helped the Treasury forecast the impact before ending EV tax exemptions.

Ministers plan to introduce a new "VED+" system in 2028. This will be a 3p-per-mile charge where drivers estimate mileage and pay upfront. If they drive fewer miles, unused credit rolls over. If they exceed the estimate, they must pay extra. Treasury figures suggest a typical EV driver could be £250 worse off per year under this scheme. The reform is intended to replace declining fuel duty revenues as more motorists switch to electric.