From 1 April 2025, there will be key changes to the Vehicle Excise Duty (VED) rates, otherwise known as road or car tax, which will impact electric vehicle (EV) owners. Previously, EVs were exempt from VED, however, the new system means zero-emission vehicles will be subject to road tax for the first time.
Continue reading to find out everything you need to know about VED and the road tax changes coming in 2025.
What is Vehicle Excise Duty?
VED is an annual tax paid by the registered keepers of vehicles in the UK. The amount of tax payable depends on several factors, including environmental performance and registration date. In general, if your vehicle emits less emissions, you will pay less tax.
Electric vehicles have benefitted from being exempt from VED until now. Therefore, the changes represent an imminent rise in running costs for thousands of EV owners and fleets in the UK. However, the VED for other emission bands, including hybrid and internal combustion engines (ICE), are also set to increase.
In the 2024 Autumn Budget, the government stated that they are implementing these road tax changes to “incentivise the purchase of zero-emission and electric cars by widening the gaps between electric, hybrid, and ICE cars tax rates.”
For fleet managers, lower VED rates will reduce business operational costs. Therefore, vehicle emissions should still be a key factor in vehicle selection.
What are the road tax changes in 2025?
- New zero-emission cars registered on or after 1 April 2025: The VED will increase to the lowest first-year rate of £10 until 2029-30. After the first year, electric cars will be subject to the standard annual rate of £195.
- For zero-emission cars registered between 1 April 2017 and 31 March 2025: These vehicles will be subject to the standard rate of £195 from 1 April 2025.
- For zero and low-emission cars registered between 1 March 2001 and 30 March 2017: Band A will move to the Band B rate of £20 a year.
- All other emission bands: The first-year rates for all other emission bands (including hybrid and ICE) are also set to increase:
- Cars emitting 1–50g/km CO2 (including hybrids) will increase to £110.
- Cars emitting 51–75g/km CO2 (including hybrids) will increase to £130.
- Cars emitting 76g/km CO2 and above the current rates will double.
- Standard VED rates: The government will uprate standard VED rates for cars, vans and motorcycles, excluding first-year rates for cars, in line with the RPI from 1 April 2025.
- Expensive Car Supplement: New zero-emission cars with a list price of over £40,000 are now subject to an additional Expensive Car Supplement at £410 per year for five years, from the second year onwards, having previously been exempt.
- Zero-emission Vans: Electric vans will move to the same rate as petrol and diesel light goods vehicles, which is currently £335 a year for most vans.
Learn more: Vehicle tax for electric, zero or low emission vehicles
What do the road tax changes mean for electric car owners?
From 1 April 2025, If you are already the registered keeper of an electric car, you will start paying the standard VED rate of £195 a year.
If you register a new electric car on or after 1 April, you will pay £10 for the first year and £195 for every year thereafter. Whilst zero-emission cars will now be subject to road tax, the rates remain significantly lower in comparison to higher-emission cars, with an attractive reduced rate for the first year.
If you register an electric car listed for £40,000 or higher after 1 April, you will have to pay the Expensive Car Supplement. This additional tax will be £410 per year for five years, from the second year onwards. Electric cars are typically more expensive than their ICE counterparts, so opting for higher specifications and adding optional extras can easily take the list price of a standard car over the £40,000 threshold.
Impact of road tax changes on fleet management
If you are responsible for overseeing your company fleet, it is important to prepare for the additional costs following the 2025 VED rate changes.
Whilst you cannot avoid the increased costs, the financial impact of the road tax changes will depend on the size and electrification of your fleet. You will still benefit from lower VED rates if you have a high percentage of zero-emission and electric cars. So, despite the increase, your company will still be better off. Not to mention, EVs continue to benefit from other financial savings including:
Corporation tax charge
If you operate a limited company, you can claim a First Year Allowance of 100% against your corporation tax for the purchase of a new fully electric car. For leased vehicles, the full monthly rental payments are deductible expenses which can be set against profits to reduce corporation tax.
Lower Benefit in Kind (BiK) rates
The BiK rate for zero-emission vehicles for 2025/26 is 3% of the list price. The BiK rate could be up to 37% for vehicles emitting over 155g/km CO2. While BiK is payable by the employee, the employer must also pay national insurance on the BiK value. Therefore, electric and low-emission vehicles represent significant cost savings for both the employee and employer.
Running costs
Electric vehicles generally have lower running costs than ICE vehicles as they have fewer moving parts, resulting in lower maintenance and repair costs. Not to mention, the cost of electricity to charge an EV is usually lower than the cost of fuel, especially if the driver is on a special home charging tariff with their energy provider.
For fleet managers and company car drivers, the Expensive Car Supplement change may significantly impact vehicle choice going forward. As of June 2024, the average price of a new electric car in the UK is £54,324 (Book My Garage). Therefore, the £40,000 threshold reduces the choice of affordable cars for drivers. Not to mention, higher specs and optional extras can make the Expensive Car Supplement payable on cheaper models.
Overall, it is important to review the total cost of ownership of fleet vehicles to consider these additional and increased costs. This helpful tool from Fleet News will help you understand the running costs of a specific vehicle, with further data on the total cost of ownership: Car Running Costs Calculator
For expert advice on road tax, please contact CLM Fleet Management or give them a call on 01908 210100.