UK Motor Industry Urges Government to Cut VAT on Electric Vehicles to Revive Sales

The Society of Motor Manufacturers and Traders (SMMT) is appealing to the UK government to reduce Value Added Tax (VAT) on new electric vehicles (EVs) and public charging infrastructure. This request comes amid concerns over a slowdown in the electric vehicle market, as manufacturers grapple with stringent government sales targets for zero-emission vehicles.

In an open letter to Chancellor Jeremy Hunt, the SMMT is advocating for a VAT reduction on electric cars and charging points for a three-year period. The urgency of the request is underscored by the government’s requirement that 22% of all new car sales and 10% of van sales must be electric in 2023. Although there was a record of 56,362 battery electric vehicle (BEV) registrations in September, BEVs currently account for only 17.8% of the market, with expectations to reach 18.5% by year-end—still falling short of government targets.

The SMMT highlighted that private demand for electric vehicles has declined by 6.3% year-to-date, even as manufacturers implement significant discounts to stimulate sales. These price reductions are projected to cost the industry over £2 billion by the end of 2023. Despite the ongoing decline in petrol and diesel vehicle sales, these traditional vehicles still represented 56.4% of buyer choices in September.

To boost EV adoption, the SMMT proposes a 50% VAT cut on new electric vehicle purchases, which could potentially cost the Treasury £7.7 billion by the end of 2026. Additionally, they recommend lowering VAT on public charging points to 5%, aligning it with the rate for home charging. The industry body also urges the government to establish mandatory infrastructure targets for charging stations to support the increasing number of electric vehicles on UK roads.

Moreover, the SMMT is advocating for a delay in the implementation of road tax for EVs, currently scheduled to begin next year, and for an extension of subsidies for commercial electric vans beyond the planned end date in March.

This push for VAT reductions and continued subsidies occurs as the global EV market faces significant hurdles. Major manufacturers like Volvo, Ford, and Toyota have scaled back their EV goals, with Toyota recently announcing delays in US EV production and Tesla falling short of its quarterly delivery targets. Additionally, several European governments have reduced support for the sector, with France cutting EV subsidies for high-income buyers and Germany terminating its subsidy program entirely.

While the UK has largely ended grants for electric vehicle purchases, business buyers can still take advantage of tax incentives for EVs used as company cars. However, industry leaders warn that without further government intervention, the market may struggle to meet ambitious targets for zero-emission vehicles.