The United Kingdom is officially due to leave the European Union (EU) on January 31st, 2020, following Brexit, the Government will no longer be bound to charge standard rate VAT of at least 15% on electric cars.
In answer to a written parliamentary question on the subject, Exchequer Secretary to the Treasury Simon Clarke wrote, “Although there are no plans at present to reduce the VAT charge on electric vehicles, the Government keeps all taxes under review and assesses them against a range of fiscal and environmental considerations.”
The AA has called on the Government to scrap VAT on the purchase price of electric cars among other measures to increase their affordability, thereby, hopefully increasing uptake.
According to a survey of AA members, 61% stated that scrapping VAT would be ‘influential’ on their decision to buy an electric car, while 28% of those from low-income households stated that it would be ‘very influential’. Younger drivers aged 18-24, were particularly keen on the idea, with 74% stating that scrapping VAT would encourage them to buy an electric car according to the survey.
Across all age groups, 51% of respondents suggested that a scrappage scheme – such as the £25 million incentive launched by Mayor of London, Sadiq Khan, in October 2019 – would provide an extra incentive to buy an electric car.
Motorists who live in the Greater London Area and claim certain benefits, means-tested or otherwise, can apply for a grant of up to £2,000 to scrap a car that does not comply with Ultra Low Emission Zone (ULEZ) emissions standards in favour of one that does. In the motor trade, some individual car manufacturers offer similar trade-in incentives.
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Considering the higher purchase price of buying electric cars whilst also finding a competitive cost-effective insurance policy, when compared against traditional internal combustion engine cars, the AA has also called for the scrapping of Vehicle Excise Duty (VED) on vehicles worth over £40,000.
At present, electric cars worth over £40,000 are subject to Premium Rate VED, which is £320 a year for five years from the date they are taxed for the second time.
Edmund King, president of the AA, summed up the scenario facing British motorists by saying, ‘Eight out of ten drivers say improving air quality is important to them, but they are confused by current policies, so many have stuck with older, more polluting cars.’
Mr. King added that, by lobbying the Government to scrap VAT on purchase or leasing prices for electric cars, the AA hoped to ‘deliver positive change’.