When supporters of eVED point to Iceland as proof that pay per mile can work, they tend to leave out the detail, writes Thomas McLennan, director of policy and public affairs at the BVRLA, who shares what a study tour to Iceland revealed about the realities of distance-based road charging and why the UK’s eVED proposals are heading for trouble.
In December 2025, the BVRLA took a delegation to Reykjavik to meet rental operators, the Icelandic EV Association and government stakeholders. Our meetings gave us incredible insight into the real world delivery of such a system, spanning the burdens on companies and drivers alike, as well as some of the unintended consequences to emerge post roll out.
What Iceland actually did
Iceland introduced a per kilometre charge for EVs and plug in hybrids in January 2024. From January 2026, it was extended to all vehicles. The challenges in those first two years have been significant.
The administrative burden is huge, demand for EVs collapsed, and rental operators told us the charge has made EV rental unprofitable. The move at the start of the year to extend the charge to all powertrains will soften some of those sharp edges.
It is worth highlighting that the system proposed for the UK contains no such plan. It is a brand new tax exclusively for EV and PHEV drivers. As one Icelandic stakeholder told our delegation bluntly: If its just on EVs, it will fail.
The impact on EV demand
Iceland was one of the world’s EV success stories. With 99.8% renewable power generation, strong consumer appetite, and generous subsidies, EV sales reached 50.1% of new registrations in 2023.
Then came the per km charge. Within twelve months, the EV share collapsed to 26%. The rental sector, where barriers to EV adoption are already steep, was particularly hard hit. The rental parc went from 17.2% EV registrations to just 6.2%.
For private motorists, dealers reported the charge was a barrier to selling electric cars. The Icelandic EV Association summed it up: We had all the cards but sadly played them wrong.
Iceland’s EV transition was consumer led. In the UK, fleets fund three out of four battery electric vehicles sold, and EVs sit at roughly 23% of new sales.
If a country that far ahead of us saw demand collapse from a strong base, the implications of layering a new tax specifically onto UK EV drivers are deeply troubling.
Design: user vs keeper
Iceland’s vehicle registration system distinguishes between the owner and the registered user. The per km charge is levied on the registered user, not simply the vehicle owner. That means for leased vehicles, the driver is directly liable, not the leasing company.
For leasecos, this removes the headache entirely. Rental firms still face challenges because the user changes with every booking, but even there, Iceland introduced workable flexibilities after two years of industry pressure: flat daily rates, bulk mileage uploads and the option to link telematics on some models.
Such steps are positive and have begun to make the delivery of the per km charge feasible.
The UK’s eVED takes the opposite approach, placing liability squarely on the registered keeper. For leasing companies managing hundreds of thousands of vehicles, that means estimating mileage, collecting data from drivers, paying upfront, reconciling annually and chasing over or underpayments, vehicle by vehicle.
BVRLA analysis presented to the Transport Select Committee last month put the annual compliance cost at £260 million by 2028, comprising £75m in administration and £185m in lost productivity from vehicles taken off the road for mileage checks.
Against expected eVED revenues of £595m from the fleet sector, some members estimate the true collection cost at 40 to 45 pence per pound raised. HMRC’s benchmark for tax administration efficiency is half a percent.
Iceland’s advantages vs UK
Iceland is a country of around 380,000 people. It has volcanic terrain, brutal winters and heavy tourist traffic hammering a sparse road network. Maintaining those roads is genuinely existential for them, which gave the government a strong public mandate for reform.
Even so, the case for reform was not primarily about EVs. Iceland’s road funding came almost entirely from fuel taxes built into the pump price of petrol and diesel. As conventional vehicles became more fuel efficient, each kilometre driven generated less tax revenue.
The Icelandic government’s own figures show that fuel tax income per kilometre driven fell by 43% between 2006 and 2023, long before EVs made up a significant share of the fleet. It is the same dynamic eroding UK fuel duty receipts today.
Iceland also has structural advantages in how its system operates. The per km charge is billed monthly, utility style, with instalments based on estimated annual mileage drawn from historical driving records.
Drivers can update their odometer reading every 30 days for more accurate billing. All outstanding vehicle taxes must be cleared before any change of ownership can be registered with the Icelandic Transport Authority, creating a clean enforcement mechanism at the point of sale.
Even with all of that, the system was still riddled with problems at launch.
The UK’s proposed eVED relies on annual self declared mileage estimates, a single annual reconciliation, manual odometer readings at MOT garages and no digital infrastructure at launch.
The Icelandic model was better designed and offered more flexibility from the outset; it still struggled to get off the ground effectively.
UK is not learning the lessons
Iceland tried pay per mile with a better starting position: deeper EV penetration, a system designed around the registered user rather than the fleet operator, monthly billing, digital infrastructure, and mandatory debt clearance on sale.
It still damaged the EV market, burdened rental operators and took years of painful workarounds to make even partially functional.
The UK is proposing something less sophisticated, more administratively hostile and exclusively targeting the vehicles we are seeking to drive uptake of.
As BVRLA chief executive Toby Poston told the Transport Select Committee, eVED as designed is extremely fleet hostile and being introduced in the wrong way at the wrong time.
The Icelandic advice to the UK was characteristically direct: Find the most comfortable way to do it. We have not done that. We are not even close.
Author: Thomas McLennan, director of policy and public affairs, BVRLA
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