What Is Pay-Per-Mile Road Tax?

by Marsh Finance on Nov 11, 2024 4:17:11 PM

Key Summary

Definition – What Is Pay Per Mile Road Tax?

A new road tax system starting April 2028 that charges electric and plug-in hybrid drivers based on the miles they drive.

Quick Summary

Rachel Reeves announced in the Autumn 2025 budget that electric and plug-in hybrids are due to face a tax charge based on mileage. Previously these cars avoided tax, but will now face a charge starting from April 2028. Mileage will be checked annually during MOT or servicing using the car’s odometer, and a charge of 3p per mile for battery cars or 1.5p per mile for plug-in hybrids will be applied. The luxury tax charge threshold has increased from £40,000 to £50,000 too.

Pay-Per-Mile Road Tax Rates (From April 2028)

Vehicle Type	Rate Per Mile	Why Different?
Battery Electric	3p	No fuel duty paid
Plug-in Hybrid	1.5p	Partial fuel duty already paid

A road with 'ROAD TAX' painted on and an arrow directed forwards, representing road tax coming soon.

How Car Tax Will Change For Electric/Hybrid Cars

From April 2028, electric cars will face a 3p per mile car tax. Plug-in hybrid cars will pay 1.5p per mile. From April 2025, electric and hybrid cars faced a £10 initial car tax fee, followed by £195 per year from the second year onwards.

This tax will remain in place until April 2028, when it will be replaced by the pay-per-mile tax system.

In the UK, the average electric driver completes 8,740 miles a year, which would see them pay £262.20 under the new pay-per-mile system, an increase of around £67 from the existing tax system.

A person placing down a block with an 'x' on, to go along side two others that spells out 'TAX'.

How Pay-Per-Mile Payments Will Be Calculated

Summary: you estimate annual mileage, and the then measure the actual mileage once a year. This is compared against the estimate, and you either pay extra or receive a refund if you've done more or less.

Drivers estimate their annual mileage.
DVLA charges based on that estimate.
At MOT/service, actual mileage is recorded.
Drivers receive a refund or pay the difference.

Benefits Of Pay-Per-Mile Tax

Summary: The system promotes fairness by charging people for the miles they actually drive. It could also reduce congestion, cut emissions, and encourage more sustainable travel choices.

Fairer to many drivers – the more you drive, the more you pay.
Make sure the government can still bring in funds that can be used to improve our roads.
Help cut down on unnecessary trips, which can have a positive effect on the environment.
Encourages people to change their way of getting around. Carpooling to work or using public transport can help the environment and ease traffic congestion.

A close up of an electric charging cable being plugged into an electric vehicle.

Drawbacks and Concerns (Rural Drivers, Privacy, EV Adoption)

Summary: Rural drivers may face higher bills due to longer journeys, and privacy concerns remain if mileage tracking expands. The tax could also slow EV adoption if introduced too soon.

If you rely on a car to get from A to B, this tax could seem harsh and unfair.
This could actually put people off driving altogether, leading to a drop in car demand.
New EV drivers could feel unfairly treated compared to past EV owners who didn’t have to pay a road tax.

Privacy Protections

Summary: The Labour government have confirmed that pay-per-mile will not track when or where you drive, just the mileage you complete every year.

The Government states the system will not track location. The new pay-per-mile system will simply work by taking your car mileage and communicating this to the DVLA. There will be no location tracking, and no tracking of when you drive.

Risk Of Mileage Clocking

Summary: The Labour government have admitted that there's no an increased risk of mileage clocking (lying about how much mileage you've done) in order to bring down tax costs, but they are looking into it.

The risk of mileage clocking will increase as a result of pay-per-mile tax, as drivers look to reduce how much they spend by misleading the DVLA about the miles they’ve completed. The Labour government has acknowledged the problem of this, and are looking into potentially measures to reduce the risk of clocking.

Hand holding binoculars against a purple gradient background, symbolising exploration, searching, and looking ahead to new opportunities.

Conclusion

Whatever the future holds for pay-per-mile road tax, it’s clear that there are mixed feelings towards it. If the measure is to come back in future, there needs to be awareness of those who rely on cars, like the elderly, disabled or people living in remote areas. Making provisions for these groups of people would make the pay-per-mile tax policy fairer. We have you covered for traditional car tax, just visit our other blog here!

Car tax is something you can’t avoid, so don’t let it impact your next car! Apply for car finance via the form below on your chosen make and model in less than 30 seconds and receive a decision the same day, with no impact on your credit score.

Pay Per Mile Road Tax - FAQs

How much will the pay per mile car tax be?

From April 2028:

Battery-electric cars will pay 3p per mile completed in a year period.
Plug-in hybrid cars will pay 1.5p per mile completed in a year period.

Pay-per-mile tax will not apply to petrol and diesel cars.

How does 3p per mile work?

Every battery electric car will face a charge of 3p per mile completed from April 2028 onwards. The mileage will be collected annually, usually in an MOT or service, by simply looking at your odometer (mileage gauge). This will be compared against your estimated mileage, and an additional charge/refund will be calculated.

How will pay per mile road tax be measured?

It will be measured using the car’s odometer. Every year, at an MOT or service, your mileage will be calculated for a year’s period, and this figure will be multiplied by the tax rate to work out how much you owe.

Do EV owners pay road tax?

Yes, EV owners pay road tax as of April 2025. The first year is only £10, but from the second year onwards you’ll face a tax of £195 per year.

Will the government track my driving?

No, the new pay-per-mile government tax won’t track when or where you drive. Your mileage will be communicated to the DVLA once a year, in which an additional charge or refund will be issued, based on the difference between predicted mileage

What is the EV road tax?

EVs are now subject to road tax. Here's a quick breakdown of how it will work:

For electric cars registered on or after April 1 2025, you will make an initial £10 payment, followed by £195 every year following.
For electric cars registered between April 2017 and March 2025, you will pay the standard rate of £195.
For electric cars registered between March 2001 and March 2017, you will pay £20.

How much does it cost to charge an electric car per mile in the UK?

This varies based on where you are charging. If you charge at home, every mile will cost around 2p. If you charge publicly, each mile will cost around 25p.

What does road tax pay for?

Road tax goes towards the upkeep and maintenance of roads in the UK. This isn't it though. Road tax also pays for education services, health, the police and local council budgets.

Why do we pay road tax?

Road tax is seen as a requirement for using UK public roads. Like anything, maintenance is needed. In the case of car tax, this is seen a necessary to make sure roads are suitable for the future.