The AA: ‘Scrap VAT on electric cars to boost sales‘

Volkswagen electric car production

The AA says the electric car market needs a “shock to the system”. It’s proposing this should come in the form of VAT being scrapped on EVs.

New research by the AA, based on a survey of 17,500 drivers, has revealed that 61 percent of motorists said they’d be more inclined to buy an electric car if the VAT was scrapped. At present, VAT is 20 percent of the car’s value, added as value-added tax. Current electric cars carry a significant premium over equivalent internal combustion vehicles.

Experts say that’s not going to change for years to come. The AA’s proposed VAT cut would make electric cars far more competitive on price, especially in combination with the current EV grant.

VAT should be cut on electric cars, says AA

Take a Tesla Model 3. If you pay £48,000 for the car, £8,000 of that is VAT. The AA is proposing that the VAT be taken off, in addition to the EV grant.

On a mid to high-range Model 3 costing £48,000 before a VAT cut, or the addition of the grant, the post-grant, post-VAT discount price would be £36,500. The Model 3’s current pre-grant entry price of £39,500, could be reduced to £31,600, which could drop below £30,000 with the grant. That’s a saving that could incentivise many buyers to hang up their internal combustion allegiance.

“A combination of the climate change emergency and local councils setting up vastly different clean air zones, means that many drivers feel under pressure to change but can’t, no matter how much they try,” said AA president Edmund King.

“With electric vehicles making up just 0.2 per cent of the nation’s cars, there is a long way to go to meet the official target of at least half of new car sales to be ultra-low emission by 2030. Our proposal would help to achieve that goal more quickly.”

VAT should be cut on electric cars, says AA

Following Norway’s example

There is a precedent for dropping VAT on electric cars. Norway, with the highest proportion of electric cars of any European country, has zero VAT on EVs. EV drivers also drive road tax-free, and can use bus lanes for free. Last year, electric car sales jumped by 144 percent.

According to the Norwegian government, an electric car was sold once every 20 minutes in 2019, with 37,850 drivers plugging in. All that said, EVs still made up just 1.2 percent of sales in 2019, and overall make up just 0.2 percent of cars on the road.