Driving is about to get more expensive in 2025, with significant changes to Vehicle Excise Duty (VED) coming into force on 1st April. For the first time, even electric vehicle (EV) owners will feel the pinch as the government eliminates exemptions and introduces new rates. These updates, outlined in Chancellor Rachel Reeves’ October 2024 budget, aims to raise billions in additional revenue but lead to substantial cost increases for individual drivers and businesses alike.

Here's everything you need to know about the changes, how they’ll affect you, and what steps you can take to manage the financial impact.

How Road Tax Works

VED, commonly known as road tax, is determined by a vehicles’ registration date, emissions and other factors. Cars registered after 1st April 2017, fall under the most recent tax rules, while older vehicles are taxed under legacy systems. The latest changes primarily affect cars registered after 2017, with adjustments for specific vehicle types, including vans, hybrids, and electric vehicles. [1]

Higher Cost for Petrol and Diesel

The most significant changes will hit the first-year VED rates for petrol and diesel cars, often referred to as the ‘showroom tax’. These rates are tied to CO2 emissions, with higher-emission vehicles seeing the steepest increases:

  • Zero-emission vehicles: First-year tax will rise from £0 to £10
  • Low-emission hybrids (1-50 g/km CO2): The tax on these vehicles will increase from £10 to £110
  • Moderate-emission vehicles (51-75 g/km CO2): Tax rises from £30 to £130
  • High-emission vehicles (76+ g/km CO2): Rates will double. For example, the first-year tax on a Range Rover could see an increase from £2,745 to £5,490

Fortunately, the second-year rate for petrol and diesel cars remains unchanged at £190 per year.

Latest VED tax bands (2025/2026)

This table will show the tax you’ll need to pay from the start of April 2025. Theres a small increase in VED rates in line with RPI, but significant increases for first-year rates.

CO2 emissions (g/km) Standard Rate First Year Rate
0 £195 £10
1-50 £195 £110
51-75 £195 £110
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

Electric Vehicles: The End of Exemptions

Starting 1st April, 2025 EV’s will no longer be exempt from VED. Here’s what to expect:

  • First-year tax: EV’s will pay a minimal £10
  • Second-year onward: EV’s registered after 1st April, 2017, will pay a flat rate of £195 Vehicles registered before this date 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 ownership

This marks a significant shift in policy, as EVs have historically been promoted as a tax-free alternative to petrol and diesel vehicles.

Hybrid Vehicles: Losing Discounts

Hybrid vehicles will also lose their £10 annual discount. Starting in 2025, hybrids registered on or after 1st April, 2017, will pay the standard flat rate of £195 per year. Older hybrids will continue to be taxed based on CO2 emissions under the previous system.

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

 What About Vans?

The current flat rate of £335 will increase to £345. Electric vans, previously exempt, will now pay this same rate.

The Financial Impact on Drivers

For individual drivers, the changes mean higher upfront costs when purchasing new vehicles. First-year VED rates are often included in car finance and leasing agreements, so monthly payments may rise to reflect these increases. Electric vehicle owners, once shielded from VED, will now face similar costs to petrol and diesel drivers, particularly for high-end EVs subject to the luxury surcharge.

What This Means for Businesses

 Fleet operators and business owners managing multiple vehicles face additional challenges:

  • Increased operating costs: Petrol, diesel, and hybrid fleets will incur higher taxes, especially for high-emission vehicles
  • Electric fleet considerations: While EVs remain more cost-efficient overall, the new VED rates will erode some of the savings
  • Strategic planning: Businesses may need to reassess fleet composition, replacing older models with more tax-efficient vehicles or investing in cleaner, low-emission options
  • Impact on Depreciation: As VED rates rise for high-emission vehicles, their resale value could take a hit. The increased annual tax burden may make these vehicles less appealing to prospective buyers, leading to faster depreciation. For businesses investing in such vehicles, this could significantly impact both the total cost of ownership and their eventual resale potential

How to Prepare

With these changes just months away, planning is key:

  • Budget for higher costs: Factor increased VED rates into your financial planning
  • Consider vehicle efficiency: When purchasing a new vehicle, prioritise low-emission models to minimise your first-year tax
  • Review your fleet strategies: Fleet operators should explore tax-efficient fleet upgrades and consider long-term savings by transitioning to electric or hybrid vehicles

The 2025 VED changes represent a significant shift in vehicle taxation, affecting all drivers regardless of vehicle type. While they aim to increase government revenue, they also signal an effort to encourage cleaner, more sustainable transport. Whether you’re a private motorist or a fleet operator, understanding these changes and planning will help you navigate the rising costs and make informed decisions for the future.

Get in touch with us today, to see how FleetCheck can help provide a wide view of your fleet, and easily see where these changes impact your business.

[1] Vehicle Excise Duty rates for cars, vans and motorcycles — from 1 April 2025 - GOV.UK

Author

  • Barrie has vast experience gained from working as a Transport & Compliance Manager for a large national haulage company and is our resident HGV specialist. VIEW PROFILE