The 3p-per-Mile EV Tax: What It Means, Why It’s Being Introduced and How It Affects EV Drivers

The Chancellor has confirmed the introduction of a new 3p-per-mile tax for electric vehicles, scheduled to begin in 2028. For businesses offering EV salary sacrifice and for drivers considering making the switch, understanding what this measure is (and equally what it isn’t), is essential.

Many of the headlines were dominated by the new £2,000 cap on pension salary sacrifice, so the pay-per-mile announcement landed quietly. Yet for many drivers, this change may create the impression that electric vehicles are no longer financially attractive.

As always, the reality is more nuanced.

This tax wasn’t unexpected. A shift away from petrol and diesel has naturally reduced long-term revenues from traditional motoring taxes, creating pressure on the Treasury to redesign how drivers contribute to the public purse. 

While the measure itself was anticipated, its timing is more contentious.

What the New EV Tax Actually Is

From 2028, electric vehicle drivers will move into a new “VED+” system. Under this structure, each driver will:

• Estimate their annual mileage at the start of the year
  
• Pay a rate of 3p per mile based on that estimate
  
• Pay this in addition to the standard annual Vehicle Excise Duty
  

For a typical UK driver covering around 8,000 miles per year, this means an additional £240 annually, taking the total cost of VED from £195 to £435.

On the surface, that may feel like a meaningful shift. But it’s important to set it against the broader running costs of going electric.

Putting It Into Perspective

Even with this new charge, EVs remain substantially cheaper to run than petrol and diesel cars. The average petrol driver pays roughly 15p per mile in fuel costs. An EV charged primarily at home costs around 2p per mile in electricity. Add the new 3p-per-mile tax, and the total rises to just 5p - still about 67% cheaper than petrol.

For those accessing an EV and charging through salary sacrifice, the savings are even better. Because the electricity is paid from pre-tax income, the effective cost is significantly reduced. A 40% band taxpayer covering 8,000 miles pays around £144 net, rather than the full £240.

Learn how to pay for your charging from your pre-tax salary here.

For many drivers, the annual fuel savings alone outweigh the mileage charge several times over.

Crucially, this tax does not take effect until 2028. There is a three-year window in which current EV drivers will continue under the existing, lower-cost system, and vehicles obtained before the introduction of the tax are expected to be grandfathered - likely exempt for the duration of their term.

Why the Tax Is Being Introduced

The government faces a long-term revenue challenge. As the share of EVs on UK roads increases, receipts from fuel duty and Vehicle Excise Duty naturally decrease. Without intervention, this leaves a widening hole in the public finances at the same time as infrastructure costs - particularly the expansion of the public charging network - are rising.

By 2028, the Treasury expects EV adoption to be high enough that the current zero-rated model is no longer sustainable. The 3p-per-mile tax is designed to preserve a degree of parity between electric and combustion-engine vehicles, while still keeping EV running costs materially lower.

This measure also sits alongside substantial investment, notably a £1.3bn expansion of the electric car grant scheme - introducing discounts of up to £3,750 - and £200m dedicated to improving the UK’s public charging network.

Rather than signalling a retreat, it reflects a shift from early-stage incentives toward long-term cost balancing.

Implementation Questions Still Remain

Although the tax is confirmed, many operational details are not. How annual mileage will be verified, how adjustments will work if drivers under or over-estimate, and whether company cars will be treated differently to privately owned EVs are all areas that still require clarification.

Industry bodies including the BVRLA and SMMT have already urged the government to delay implementation until 2030 and apply the structure consistently across all vehicle types.

As with many policy announcements of this scale, consultation is likely to refine what’s actually implemented.

How loveelectric Views the New Tax

At loveelectric, our stance is straightforward: while the introduction of a per-mile charge was widely expected, we believe its introduction in 2028 is too soon. The EV market, while maturing quickly, hasn’t yet reached the point where additional running costs won’t impact uptake. Introducing this measure ahead of the government’s own 2030 zero-emission vehicle mandate risks slowing momentum at the very moment it should be accelerating.

Timing aside, the tax does not fundamentally alter the strong economic case for driving electric - particularly through salary sacrifice, where monthly costs are materially reduced through Income Tax and National Insurance savings.

Salary sacrifice also provides essential protection against fiscal drag, especially with income tax thresholds now frozen until 2030. Reducing taxable income is becoming a critical tool for employees, and EVs remain one of the most powerful and tax-efficient ways to achieve that.

While public charging costs can be higher than home charging, the loveelectric Charge Card helps address that challenge directly - unlocking discounted rates across major networks and enabling drivers to salary sacrifice their charging costs too. That means many drivers can reduce their cost per mile even further, offsetting a portion of the new tax before it even arrives.

In short: although the timing is unfortunate, the fundamentals remain unchanged. EVs are still cheaper to run, more efficient, and - through salary sacrifice - substantially more affordable than petrol or diesel alternatives.

So, What Should Drivers and Businesses Do Now?

The three-year window before implementation gives drivers and employers time to plan. Those considering an EV via salary sacrifice can lock in today’s terms, benefit from the new grant scheme, and in many cases avoid the 2028 mileage tax completely if their agreement is in place beforehand.

For businesses, the message is similar: EV salary sacrifice continues to offer one of the most compelling, tax-efficient benefits available, especially as pension salary sacrifice becomes less favourable under the new £2,000 cap.

Despite the changes ahead, the direction of travel remains clear. EVs continue to represent the most cost-effective way to drive - and one of the strongest employee benefits available.

Compare Your Costs - Even With the New Tax in Place

If you want to see exactly what the 3p-per-mile charge would mean for you, our updated calculator lets you compare the real-world cost of an EV - including the new tax - against your current vehicle.

Explore your savings, compare your options and see why an electric vehicle still makes financial sense - today, and long after 2028 arrives.