How the Vehicle Excise Duty (VED) changes from 1 April 2025 will affect your vehicle.
From 1 April 2025, registered owners of electric, zero- or low-emission cars, vans, and motorcycles will need to pay vehicle tax like registered owners of petrol and diesel vehicles. This change will apply to new and existing cars. Choosing the right equipment for the job requires sound and accurate knowledge. With this in mind, our most significant recommendation is always to do your research.
How much is my car tax in 2025?
The flat rate cost of car tax in 2025 is £190. Hybrid cars get a small discount (£10), but if your vehicle had a list price which exceeded £40,000 when it was first sold, then you may also be liable for the ‘premium car tax’ fee, which adds £410 to the vehicle’s annual VED costs.
You may pay less or more if your car was first used before 2017. The exact fee for your annual road tax depends on the year your vehicle was first registered and the type of fuel it uses.
Many electric cars qualify for free road tax, but this will change in April when VED charges will be introduced for EVs.
Regarding capital investments and total cost of ownership, vehicles are among the most expensive purchases your company will make annually, so selecting the best fleet vehicles from the start is worth the effort.
This new measure removes band A from the existing VED system, which is currently £0. Vehicles in this band will be required to move to the first band, where a rate becomes payable.
What is car tax or VED, and why must I pay it?
Vehicle Excise Duty (VED), or car or road tax, is a tax on the use of vehicles on public roads in the UK.
It was introduced in 1937 and replaced the old road tax system, which dates back to the 17th-century taxation of Hackney Carriages.
The tax disc was introduced in 1921, and until 1974, local authorities handled car taxation.
Then, in 1974, the DVLC (Driver and Licensing Vehicle Centre) was established, with an office in Swansea handling all vehicle and driver registration issues. The DVLC later became the DVLA (Driver and Vehicle Licensing Agency), and the tax disc was abolished in 2014.
Each year, the DVLA collects around £5 billion in VED, but not all of this is spent on road improvements and infrastructure. VED is grouped in with other tax forms, meaning the income from your road tax is just as likely to be spent on education or healthcare as on roads. Understanding car tax in the UK can be a confusing process. Road tax (or Vehicle Excise Duty, to use its official name) has changed substantially over the years, making it difficult to understand how much you need to pay in 2025.
To complicate matters further, the Government automatically adjusts road tax rates in line with inflation. The most recent change was implemented on 1 April 2024, with rates increased for the 2024/25 financial year. You must also understand essential rules when buying or selling a vehicle.
Chancellor Rachel Reeves has announced changes to the tax bands for brand-new cars from April 2025 onwards. The changes will only affect the cost of VED for the first year the vehicle is registered, but there are some substantial rises.
To encourage the use of electric cars, the first-year tax bill for all cars emitting between 1 and 50 g/km of CO2 (including most plug-in hybrids) will rise to £110. Currently, hybrids in this band pay zero VED in the first year, while petrol and diesel cars pay £10.
The price of new cars emitting between 51 and 75g/km of CO2 will increase from £30 (or £20 for hybrids) to £135.
All other rates will double next year, meaning the owner of a new VW Golf 1.5 TSI will pay an extra £220 in the first year. By contrast, a new BMW X5 M60i will have £2,745 added to the cost of the first-year rate.
Standard VED rates beyond the first year will rise in line with the Retail Price Index (RPI), as is usually the case.
The Chancellor also announced changes to Bik (Benefit in Kind) rates for the next few years up to 2029/30, allowing businesses to plan.
Bik rates for pure electric vehicles will rise steadily by one per cent per year from 2025/26 to 2027/28, reaching seven per cent in 2028/29 and nine per cent in 2029/30. The rates for petrol and diesel cars will rise more modestly by one per cent per year, with a maximum of 38 per cent in 2028/29 and 39 per cent in 2029/30. However, the picture of hybrids is more complex. Until
2027/28, the BiK rate for hybrids with 1-50g/km emissions will depend on their electric range; the longer the range, the lower the tax rate, with the most efficient hybrids currently at just five per cent. However, starting in 2028/29, all hybrids in this range will be taxed 18 per cent (rising to 19 per cent in 2029/30) regardless of their electric range.
Electric vehicles benefit from the drive to net zero in several ways, although rising BIK rates and other changes make them less lucrative than they once were. The vehicle excise duty (VED) exemption for electric cars ends in April 2025, with vehicles being taxed at the lowest standard rate. However, despite the rising rates, electric cars remain competitive compared to petrol, diesel, and hybrid options. Electric vehicles will also continue to benefit from salary sacrifice exemptions, meaning businesses and employees can still enjoy tax savings under optional remuneration arrangements.
Electric company cars also boost a business’s green credentials and appeal to employees, though practicality concerns, such as charging infrastructure and range limitations, remain key considerations.
The story for vans, though, is different again, and this might be a good time to make the transition. Company vans offer a more straightforward approach to tax. Instead of a percentage-based BiK charge, vans are taxed at a flat rate (currently £3,960 a year). This amount will rise in line with inflation from April 2025 but will likely remain a lower-cost option than cars. However, businesses must ensure the vehicle meets the criteria for a van rather than a car. April 2025, double-cab pickups with a payload of one tonne or more will be taxed as cars for BiK purposes.
Regarding second-hand or older, VED will only increase in line with RPI (retail performance index). The ONS (Office for National Statistics) lists RPI at 3.6% for December 2024 on an upward swing, but it may fluctuate between now and April 2025. However, vehicles that cost more than £40,000 when new (after options) incur an increased extra annual charge of £410 on top of the standard VED car tax rates from their car’s second through sixth birthdays.
How do I pay for my car tax?
The easiest way to pay for road tax is to do it online.
To tax your car, you’ll need a reference number from one of the following documents:
A recent reminder (V11) ‘last chance’ warning letter from the DVLA
Vehicle logbook (V5C) in your name
A green, new keeper supplement (V5C/2) from a logbook of a car you’ve just bought.
The system is straightforward, and you can pay via debit card, credit card or direct debit.
Note that additional charges may apply if you pay via direct debit.
If you’d rather not pay online, you can telephone the DVLA’s 24-hour service on 0300 123 4321, although direct debit is not an option over the phone.
Alternatively, for something more traditional, you can tax a vehicle at a Post Office that handles vehicle taxes.
What happens if I don’t tax my car?
If you are the registered keeper of an untaxed vehicle, you will receive a Late Licensing Penalty (LLP) letter.
The fine is £80, which can be reduced to £40 if you pay within 33 days. If you fail to pay, the case will be referred to a debt collection agency.