The Institute said in its response to the HM Treasury consultation on the introduction of the duty that while it recognises the need to replace declining fuel duty revenues as the UK transitions to electric vehicles (EVs), the success of eVED will depend on how easy it is for motorists and businesses to comply. If the new system is not carefully designed around automation and frictionless reporting, it could undermine the government's objective of encouraging the uptake of electric vehicles.

eVED will introduce an administrative burden on EV drivers, who will be required to estimate their annual mileage upfront to calculate monthly payments, with a reconciliation process required at the end of the year to settle under or overpayments.

The Institute suggested the new system should operate on an automated “set and forget” basis to minimise user error and administrative friction. This should feature auto-populated mileage estimates based on historical MOT data, and safeguards to prevent motorists from intentionally suppressing their mileage estimates year-on-year.

The relationship between eVED and fuel duty must be monitored to ensure the tax differential remains between EVs and cars with internal combustion engines, said ICAEW. Fuel duty has been frozen for long periods in recent years and if that pattern re-emerges, while eVED increases with inflation, the fiscal incentive to transition to an EV could be rapidly eroded.

As far as the sale of used EVs is concerned, ICAEW warned that transferring an eVED tax liability on resale risked unfairness and market distortion if buyers unknowingly inherited a tax position based on the previous owner's driving behaviour or mileage estimates. This would create uncertainty at the point of sale and undermine the confidence in the second-hand EV market. 

Finally, the Institute suggested the implementation of a penalty-free period of at least 12 months after eVED is introduced, with a proportionate penalty regime that clearly distinguishes between genuine human error and deliberate non-compliance, supported by a clear statutory “reasonable excuse” framework.

Ed Saltmarsh, ICAEW Technical Manager for VAT and Customs, said: “We understand the need to replace fuel duty revenues as the vehicle fleet changes, but if eVED is not designed with simplicity and automation at its core, complexity risks undermining a transition the government is otherwise trying to support.

“Feedback from our members indicates concern about what the proposed system will mean in practice. The proposal introduces estimation, reconciliation and self-reporting for millions of drivers who have never had to interact with vehicle tax in this way before. Getting the design right from the outset will be crucial.”

ENDS

Notes to editors:

• Read ICAEW's response in full