The UK Government has confirmed significant updates to Vehicle Excise Duty (VED) starting in April 2025, marking a pivotal shift for electric vehicle (EV) owners and hybrid drivers in tax rules. For years, electric cars have enjoyed a tax-exempt status, but this is set to change. Here’s what you need to know the new tax rules.
Road Tax Changes for Electric Vehicles
From April 1, 2025, electric vehicles will no longer be exempt from road tax. EVs registered on or after this date will pay:
- A first-year rate of £10.
- A standard annual rate of £195 starting from the second year.
Owners of EVs registered between April 1, 2017, and March 31, 2025, won’t escape these changes either. Starting from their next tax renewal post-April 2025, they will also pay the standard rate of £195 annually.
For older EVs (registered between March 2001 and March 2017), the tax band will shift to Band B, requiring a £20 annual payment.
Expensive Car Supplement Now Applies to EVs
Another major change is the removal of the exemption from the Expensive Car Supplement (ECS) for EVs. EVs priced over £40,000 will now incur an additional £355 annual charge for the first five years, adding a considerable cost for many EV owners, as data suggests two-thirds of EVs exceed the £40,000 price tag.
Increases for Hybrids and High-Emission Cars
Hybrid vehicles and high-emission cars will also face substantial VED hikes:
- Cars with CO2 emissions between 1-50g/km will see their first-year VED rise from £10 to £110.
- Vehicles emitting 51-75g/km CO2 will face a jump from £30 to £130.
- High-emission vehicles (e.g., emitting 151-170g/km CO2) will see their first-year rate double, rising to £1,360 from £680.
Why These Changes Are Happening
The Government attributes these changes to declining tax revenues as drivers transition from petrol and diesel to electric vehicles. The treasury loses significant income not only from VED but also from fuel duty, which contributes 53p per litre of petrol or diesel sold. The new tax measures aim to maintain revenue streams in real terms, adjusted by the Retail Price Index.
Why EVs Still Make Sense
Despite these new costs, electric vehicles remain cost-effective compared to petrol or diesel counterparts, especially for company cars using salary sacrifice schemes. With lower running costs, cheaper maintenance, and environmental benefits, EVs continue to be a smart choice for businesses and individuals alike.
Navigating these changes and their impact on your fleet or personal vehicles can be challenging. At The Infinity Group, we provide tailored support to help businesses adapt to new tax regulations, ensuring compliance and optimising financial outcomes. From payroll to tax planning and compliance support, we’re here to make your transition seamless.
Contact The Infinity Group today to learn how we can support your business during this period of change, and let’s drive into the future together.