The Autumn Budget saw the introduction of a pay-per-mile scheme for battery-electric vehicles (BEVs) and plug-in hybrids (PHEVs). The move could impact workshops in a number of ways, but what does this mean for drivers and workshops?
The scheme will begin in 2028. For BEVs, this pay-per-mile rate will start a £0.03 per mile. For PHEVs, a discounted rate of £0.015 will be introduced. The system, called eVED, will see drivers pay for their mileage alongside their existing VED.
The pay-per-mile rates will be uprated in line with inflation in 2029 onwards. With the annual £195 VED requirement after the first year of registrations, BEV drivers travelling an average of 12,000 miles a year would pay £555 a year in tax.
A consultation has been published to gain opinion on how the system will work. According to the document, drivers will estimate their annual mileage and pay for the year ahead, or spread the cost monthly. At the end of the year, actual mileage can be submitted, at which point a ‘reconciliation’ will be required.
‘In moves to update the tax system for a modern-day economy the government is introducing a new per mile levy for electric and plug-in hybrid cars, coming in 2028. All cars contribute to wear and tear on our roads, so it is only right that our motoring taxes cover EVs via a modest per mile levy, with extra support to keep EV ownership attractive,’ the government announced.
How to pay the mileage charge
The eVED scheme will require drivers to input their annual mileage when renewing their VED.
This suggests a change in the way drivers apply for VED. Currently, vehicle owners can opt to pay for a full 12 months, six months, or a monthly fee. Automatic renewal is offered, with payments taken using direct debit. For monthly payments, this continues until cancelled.
However, if EV drivers are required to input their mileage at the VED renewal stage, this suggests the current rolling-payment scheme may end. Instead, owners will likely need to fill out new forms each year, including current mileage and projected annual mileage.
This change has not been announced, but is suggested in the government’s consultation document. Whether this requirement will be rolled out to drivers of all powertrain types, or just EV owners, remains to be seen.
Mileage verification
While drivers will be required to enter their current and estimated mileage at the VED renewal stage, this system is obviously open to manipulation. Drivers could put any mileage count in and pay a reduced rate.
Therefore, the consultation includes provision for mileage to be checked at the MOT stage. The government will share data with the DVLA, which will be running the eVED scheme, to verify driver claims.
Drivers will not need to pay eVED at this time. It is simply to check what the mileage of the vehicle is, and whether it matches up with the claimed figures at the VED renewal.
However, for BEVs and PHEVs under three-years-old, MOT data will not exist. Therefore, the consultation states that drivers must submit their cars to ‘authorised examiners’ for verification. This is likely to be MOT centres, and the government itself will cover the cost of this.
Therefore, MOT stations may find themselves offering another service, with more information yet to be provided. However, it does mean the potential of relationships with a wider customer base, and with these drivers owning an EV, it could be a springboard to servicing, as long as qualifications and training is gained.
The details surrounding the verification process is still unclear, with the consultation running at present.
The costs of pay-per-mile
The pay-per-mile plans suggest that the figure for BEVs has been calculated at half the cost per mile for petrol drivers, paid through fuel duty. This currently sits at £0.5295 per litre. However, the budget announcement stated this will remain frozen until September 2026, when it will rise in line with inflation.
Based on an average of 36 miles per gallon (MPG), a petrol car achieves a cost of £0.07 per mile using current fuel-duty rates. However, diesel vehicles, with an average of 43mpg, achieve a cost per mile of £0.06. Hybrids, which have an average of around 59mpg, have a cost-per-mile of £0.04.
Taking the average MPG across the two internal-combustion engine (ICE) technologies, the pay-per-mile cost sits at £0.06, double the planned BEV rate.
According to the latest car parc data from the SMMT, there were 1,334,108 BEVs on UK roads at the end of 2024. With an average of 12,000 miles travelled in a year, this fleet would raise £480.3 million with a pay-per-mile scheme.
This is a small amount compared to the income generated for petrol models. There were 21,041,175 units in the UK at the end of 2024. Based on a rate of £0.07 per mile, this parc would generate around £17.7 billion for the UK treasury, based on an average distance of 12,000 miles a year per car.
For PHEVs the situation is more complex. Drivers will be paying both fuel duty and pay-per-mile tax. This could see a cost of £0.07 per mile for a petrol PHEV, dropping to £0.015 when switching to all-electric mode. However, with the need to submit mileage readings to calculate the pay-per-mile amount, this additional admin may put drivers off purchasing the powertrain.
Will pay-per-mile reduce fuel duty loss?
The pay-per-mile scheme for EVs has been brought in partially to offset any declines in fuel duty that the treasury will see as the UK switches to electromobility. The Office for Budget Responsibility (OBR) stated that £1.4 billion would be raised by introducing pay-per-mileage for EVs.
However, it also warned that that: ‘on the basis of the current policy settings, this only makes up for about one-quarter of the receipts that will be lost from the decline of fuel duty by 2050.
It appears that, at present, there is little threat of declining fuel duty income to warrant the new pay-per-mile tax. This would require a significant reduction in the number of petrol and diesel models in the UK by 2028.
In 2024, the UK car parc stood at 36,165,401 units, according to SMMT data. This was a 1.3% rise year on year. Of these, 34,088,155 units were either a petrol, diesel or HEV. This was a 0.3% decline compared to 2023 figures, based on Autovista24 calculations.
This was driven by a fall in petrol and diesel figures. Combined, ICE-powered passenger cars fell 1.1% compared to 2023 totals.
In 2024 the UK government saw £26.02 billion of revenue from fuel duty on ICE cars, according to Autovista24 calculations. This is based on a 12,000-mile average petrol and diesel powertrain.
This was down by 0.9%, or £225.9 million, compared to the £26.25 billion income from petrol and diesel models in 2023, based on the same criteria.
If the pay-per-mile scheme was implemented now, based on 2024 car parc figures, BEVs would offset this decline by £254.34 million.
While EV sales are increasing, they are not simply replacing petrol, diesel or HEV models. Therefore, it will likely be some time before the decline in ICE passenger cars is large enough to see a significant drop in fuel-duty income.
PHEV market could collapse
For PHEVs, the situation is more complex. As reporting electric-only mileage will be impractical, the pay-per-mile rate has been reduced to £0.015. This will be applied for the total mileage travelled in a year, regardless of power used. PHEVs will also be required to continue paying fuel duty when filling up.
‘The government recognises that PHEV driving habits vary and that some motorists will drive more or less than 50% in electric mode. However, alternative options would require motorists to report their exact mileage driven in petrol versus electric mode, which is not considered a practical or proportionate approach,’ the government stated in its consultation document.
‘A reduced rate for PHEVs strikes the right balance between fairness, protecting motorists’ privacy and minimising administrative burdens on motorists.’
This would mean that for a petrol PHEV, drivers could end up paying £0.085 per mile. Covering 12,000 miles per year, plug-in hybrid owners would pay £1,020 a year, Of this, just £180 would contribute to electric-only usage.
However, in comparison to a BEV driver paying just £360 for the same distance, the pay-per-mile charge seems disproportionate. The PHEV cost is also much higher than the £840 for petrol powertrains after 12,000 miles.
The situation could impact the PHEV market, which has been performing well throughout 2025, according to SMMT registrations data. Drivers may not want to spend large amounts for their journeys. This means the bridging technology could see new-car deliveries plumet, with customers moving back to ICE, or switching to HEVs or BEVs.
The issue for garages
The move to a pay-per-mile scheme for EVs could impact uptake of the technology. While the government is offering incentives for their purchase, it has also de-incentivised them this year, with the application of VED and the expensive car supplement. In addition, will no longer be exempt from the London congestion charge.
Therefore, the cost reduction that owning an EV offers is evaporating. But the market is still there, and looking at the bigger picture, they are still cheaper to run, especially for those with off-street parking.
It remains to be seen how the budget will impact EV registrations. But the current parc will not disappear. Therefore, drivers will still require servicing, making EV training essential.
In addition, the requirement for MOT validation, should it be implemented, could make independent garages more visible to a larger customer base. Those drivers who would not tend to consider an independent workshop with a new vehicle may find it more convenient. And this is an opportunity to promote the services offered.
Wrong time for pay-per-mile?
The introduction of pay-per-mile driving for EVs is another additional tax on BEVs in particular. This year has already seen all-electric models required to pay VED, while they also became applicable for the ECS.
The government is pushing for BEV adoption, with the zero-emission vehicle mandate placing strict requirements on carmakers. Yet these additional taxes, while bringing the technology in line with other powertrains, could put buyers off investing in all-electric models.
‘This new pay-per-mile charge is likely to reduce demand for electric cars as it increases their lifetime cost. To meet the ZEV mandate, manufacturers would therefore need to respond through lowering prices or reducing sales of non-EV vehicles,’ the OBR stated in its report.
‘Overall, as a result of this measure, we estimate there will be around 440,000 fewer electric car sales across the forecast period relative to the pre-budget forecast, with 130,000 of this offset by the expected increase in sales due to other Budget measures.’
Mike Hawes, SMMT chief executive, commented: ‘Changes to the VED expensive car supplement are welcome, as is the additional £1.3 billion funding for the Electric Car Grant and support for charging infrastructure. These will help, but will not offset the impact of introducing a new electric-Vehicle Excise Duty, the wrong measure at the wrong time.
‘Manufacturers have invested to bring more than 150 EV models to market. However, the pressure to deliver the world’s most ambitious zero emission vehicle sales targets – whilst maintaining industry viability – is intense. With even the OBR warning this new tax will undermine demand, government must work with industry to reduce the cost of compliance and protect the UK’s investment appeal,’ he added.
