As we head into 2025, electric vehicle (EV) owners will face a significant change regarding Vehicle Excise Duty (VED). Starting April 1st, 2025, electric vehicles will no longer be exempt from VED, removing a key financial benefit that many EV owners have enjoyed. This change is part of a broader effort to bring more consistency to the taxation of all vehicles, regardless of their fuel type.
While this marks a shift, electric vehicles still offer a number of benefits, including lower running costs, environmental advantages, and access to various incentives. We’ll break down what this means for EV owners, potential leasers, and those considering making the switch to an electric car in the near future.
This change means that electric vehicles, which were previously exempt from road tax, will now be subject to it. The government anticipates raising billions in additional revenue, but this will also lead to substantial cost increases for businesses and individuals, who will need to factor these additional expenses into their budgets.
While these changes may seem confusing, we have provided a guide to help you understand everything you need to know about VED.
What is VED?
Vehicle Excise Duty, commonly known as road tax, is determined by various factors including a vehicle's registration date, emissions level, and other criteria. Vehicles registered after April 1st, 2017, fall under the most recent tax rules, whereas older vehicles are taxed under a legacy system. This can cause confusion, as some are unsure which regulations apply to their cars. It is important to be aware of the recent tax changes, particularly for vehicles registered after 2017, as well as adjustments specific to electric vehicles, vans, and hybrids.
Changes to VED from April 1st, 2025
Zero Emissions/Electric Cars
Starting 1st April, 2025 EV’s will no longer be exempt from VED. The changes are:-
Starting 1st April, 2025 EV’s will no longer be exempt from VED. The changes are:-
· First-year of registry tax: EV owners will have to pay £10
· Second-year of registry onwards:
- EV’s registered after 1st April 2017, will pay a flat rate of £195 per year
- EV’s registered before 1st April 2017, will pay a reduced rate of £20 per year
· Luxury Surcharge: EVs priced above £40,000 will incur an additional £425 per year from the second to sixth year of registry
Hybrid and Alternatively Fuelled Vehicles (AFVs)
Previously, hybrid and alternatively fuelled vehicles benefited from a £10 annual discount. However, this will now be removed, and the rate you pay will depend on when the vehicle was registered:
· Registered on or after April 1st, 2017 – the standard rate (£195) will apply.
· Registered before April 1st, 2017 – the rate will depend on the vehicle’s CO2 emissions shown in the table below.
VED Tax Bands 2025/2026
| CO2 Emissions (g/km) | Standard Rate | First Year Rate |
|---|---|---|
| 0 | £195 | £10 |
| 1-50 | £195 | £110 |
| 51-75 | £195 | £130 |
| 76-90 | £195 | £270 |
| 91-100 | £195 | £350 |
| 101-110 | £195 | £390 |
| 111-130 | £195 | £440 |
| 131-150 | £195 | £540 |
| 151-170 | £195 | £1,360 |
| 171-190 | £195 | £2,190 |
| 191-225 | £195 | £3,300 |
| 226-255 | £195 | £4,680 |
| Over 255 | £195 | £5,490 |
Older Cars and Specialty Vehicles
Cars registered between 1984 and 2001 will see modest increases:
- Small engines (<1549cc): Annual tax increases from £210 to £220
- Larger engines (>1549cc): Annual tax increases from £360 to £375
- Exemptions remain in place for classic cars over 40 years old, vehicles used by disabled drivers, and agricultural machinery
Commercial Vehicles
The current flat rate of £335 will increase to £345. Electric vans, previously exempt, will now pay this same rate.
Financial Impact on Drivers
For individual drivers, the upcoming changes will lead to higher upfront costs when buying new vehicles. Since first-year Vehicle Excise Duty (VED) rates are often bundled into car finance and leasing agreements, monthly payments are likely to increase to account for these adjustments. Electric vehicle (EV) owners, who previously enjoyed exemptions from VED, will now face similar tax burdens as petrol and diesel drivers, especially for premium EVs subject to the luxury surcharge.
Implications for Businesses
Fleet operators and business owners managing multiple vehicles will encounter several challenges:
- Rising operating costs: Fleets relying on petrol, diesel, or hybrid vehicles will face higher taxes, particularly for high-emission models.
- EV fleet considerations: Although EVs remain more cost-efficient overall, the new VED rates will reduce some of their financial advantages.
- Strategic adjustments: Businesses may need to reevaluate their fleet composition, replacing older vehicles with more tax-efficient options or investing in cleaner, low-emission alternatives.
- Depreciation concerns: As VED rates increase for high-emission vehicles, their resale value may decline. The higher annual tax burden could make these vehicles less attractive to buyers, accelerating depreciation. For businesses, this could affect both the total cost of ownership and the potential resale value of their assets.
How to Prepare
With these changes taking effect in the near future, proactive planning is essential:
- Budget for higher expenses: Incorporate the increased VED rates into your financial forecasts.
- Prioritise vehicle efficiency: When purchasing new vehicles, opt for low-emission models to reduce first-year tax liabilities.
- Reassess fleet strategies: Fleet operators should explore tax-efficient upgrades and consider transitioning to electric or hybrid vehicles for long-term savings.
The 2025 VED changes mark a significant shift in vehicle taxation, impacting all drivers and businesses, regardless of vehicle type. While these adjustments aim to boost government revenue, they also reflect a push toward cleaner, more sustainable transportation. Whether you’re a private driver or a fleet operator, understanding these changes and planning accordingly will help you manage rising costs and make informed decisions for the future.
