The government has announced that from 1 April 2028, electric and plug-in hybrid cars will pay a new mileage charge, Electric Vehicle Excise Duty (eVED), on top of normal road tax. Draft law was published in July 2026. It is not yet law, and the new Chancellor, John Healey, has not said whether it will feature in his first Budget on 28 October. If you sign a three or four-year agreement this autumn, the charge would start part way through it. Here is where things stand, and what it would mean on a lease.
The proposal at a glance
| Item | Proposal |
|---|---|
| Start date | 1 April 2028 |
| Fully electric and hydrogen cars | 3p per mile |
| Plug-in hybrids and range extenders | 1.5p per mile |
| Future increases | In line with CPI inflation from 2029/30 |
| Vans | Out of scope at launch |
| Relationship to road tax | Paid on top of standard road tax, as part of the same licence |
| Miles driven abroad | Included |
What it would cost
| Annual mileage | Fully electric (3p) | Plug-in hybrid (1.5p) |
|---|---|---|
| 5,000 | £150 | £75 |
| 8,000 | £240 | £120 |
| 10,000 | £300 | £150 |
| 15,000 | £450 | £225 |
| 20,000 | £600 | £300 |
The government's own estimate is that the average electric car driver would pay around £240 a year, based on 8,000 miles. Paying a 12-month licence in instalments would cost 5% more.
For context, fuel duty on petrol and diesel is currently 52.95p a litre. A petrol car averaging 45 miles per gallon pays roughly 5.3p a mile in fuel duty alone, before VAT. So eVED would narrow the tax gap between electric and petrol cars without closing it.
How the charge would be collected
At each road tax renewal, the keeper would give an odometer reading and estimate the mileage for the year ahead, then pay upfront or in instalments. The actual mileage is reconciled the following year, and MOT readings are used to check declarations. For new cars, the government dropped its proposed extra checks before the first MOT: keepers estimate, and the first MOT settles the difference. Unused miles would normally carry forward rather than be refunded.
Where it stands legally
- Consultation. Ran from 26 November 2025 to 18 March 2026 and drew 5,133 responses. The government published its response on 13 July 2026.
- Draft law. HMRC published draft clauses for the next Finance Bill on 13 July 2026. The technical consultation closed on 7 September 2026.
- Not yet law. The government says the final contents of the next Finance Bill will be decided by the Chancellor. The draft was published a week before the change of Prime Minister and Chancellor on 20 July 2026, and the new government has not yet said whether it will proceed unchanged.
The Budget on 28 October is the next point at which that could become clear. We will update this article when it does.
How it would work on a lease or company car
- The leasing company is liable. On contract hire, the leasing company is the registered keeper, so it is responsible for taxing the car, just as it is for road tax today.
- Mileage estimated centrally. Leasing and rental companies will be able to estimate mileage centrally, and the government expects that estimate to reflect the contracted mileage allowance in most cases. Bulk licensing and payment are planned.
- Passing on the cost is not yet defined. The government has not set how, or whether, leasing companies pass eVED to drivers. It has said that where eVED is passed through lease payments, the usual VAT treatment of lease payments applies.
- Businesses can deduct it. Where eVED is incurred wholly and exclusively for business, it will generally be deductible as a business expense, like road tax.
- Two open questions. The government has not said how eVED will be handled on agreements signed before it was announced, or whether it affects company car Benefit in Kind.
How much of a new agreement it could cover
eVED would start at a car's first road tax renewal after 1 April 2028, not on 1 April itself, so the month the car was first taxed matters. For a new car first taxed in October 2026 and renewed each October, on the timing proposed so far:
| Agreement length | Ends | First eVED renewal | Months under eVED |
|---|---|---|---|
| 24 months | October 2028 | October 2028 | None |
| 36 months | October 2029 | October 2028 | 12 |
| 48 months | October 2030 | October 2028 | 24 |
The same pattern holds for any new car whose agreement starts between April 2026 and March 2027: a two-year agreement ends at its first eVED renewal, and each further year adds a year under eVED. An agreement starting in April 2027 or later reaches eVED at its first renewal, one year in. Bulk licensing for leasing companies could change this timing for leased cars, and that detail has not been published.
What to do if you are leasing now
- Check your end date. If your agreement runs beyond your car's first road tax renewal after 1 April 2028, eVED may apply for the rest of it. The table above shows how that works for an agreement starting now.
- Ask the question before you sign. Ask whether road tax is included, whether the rental can change if new vehicle taxes are introduced, and how any eVED would be recovered.
- Set a realistic mileage allowance. If leasing companies estimate eVED from contracted mileage, an accurate allowance matters more than ever.
- Keep it in proportion. At 10,000 miles, eVED on an electric car would be £300 a year. Company car tax differences are usually far larger: in 2028/29 an electric car is taxed at 7%, while cars emitting 1 to 50g/km, which covers most plug-in hybrids, move to a flat 18%.
- Vans are unaffected at launch. If you run electric vans, the proposal does not currently apply to them.
If you want help comparing electric and plug-in hybrid options across the full term of an agreement, including eVED as proposed, call Intelligent Vehicle Finance on 01752 429950 or request a callback.
You can also read company car tax to 2030 and the 2028 plug-in hybrid change our guide to company car tax and the advisory fuel rates for company cars from 1 September 2026, or browse electric car leasing and business contract hire. The government's eVED policy paper has the full detail.
Sources: HMRC policy paper, Electric Vehicle Excise Duty (eVED), 13 July 2026; HM Treasury, eVED consultation response, 13 July 2026; HM Treasury, eVED consultation, 26 November 2025; Finance Bill 2026-27 draft legislation, 13 July 2026; Budget 2025; GOV.UK amended fuel duty rates 2026 to 2027. eVED is a proposal and is not yet law; rates and rules may change before it is legislated. The fuel duty comparison is illustrative. This is general information, not tax advice.
Intelligent Vehicle Finance is a credit broker, not a lender, and receives a commission from the lender or funder when an agreement completes. A trading style of XLCR Vehicle Management Ltd, authorised and regulated by the Financial Conduct Authority (FRN 315268). Subject to status and availability.
Reviewed by Stacey Smith, Brand Director, Intelligent Vehicle Finance. Last updated: September 2026.