The UK government is updating car tax laws, which will start on April 1, 2025. These changes will affect how all vehicle owners, including electric vehicle (EV) owners, pay Vehicle Excise Duty (VED). EV drivers previously had major tax breaks, but those will soon end. This update aims to increase government revenue and create a fairer tax system for all fuel types. Whether you drive a diesel car for work or manage a fleet of electric vans, these changes will affect your finances.
Electric Cars No Longer Exempt: What You’ll Pay
One major change in the UK VED rules is that EVs will no longer be exempt from tax. Starting in April 2025, new electric vehicles will have a first-year VED of £10. After that, the annual fee will be £195. EVs registered between April 1, 2017, and March 31, 2025, will also pay this standard rate. Even older electric vehicles from 2001 to 2017 will now be taxed at £20 per year. The goal is to make EV taxes more similar to those for petrol and diesel vehicles as the market grows.
This is a big change for those who bought electric cars expecting to save on taxes long-term. Future EV buyers should consider these new tax costs when making their decisions.
What It Means for Petrol & Diesel Owners
The new reforms will raise taxes for petrol and diesel car owners under the Vehicle Excise Duty 2025. Cars that emit between 1–75g/km CO2 will face higher first-year taxes. For example, vehicles in the 1–50g/km range will go from £10 to £110 in the first year. Hybrids and low-emission cars, which used to enjoy lower rates, will also be affected.
Starting from the second year, all vehicles will have a flat annual tax rate of £195, no matter their fuel type or emissions. This change aims to simplify the tax system, but some drivers may feel unfairly treated even if they choose eco-friendly cars.
For small businesses, this can lead to higher costs for maintaining their vehicle fleets, impacting cash flow and pricing. It’s important to review your vehicle strategy alongside your financial plans. Clarkwell & Co., a leading accounting firm in London, can help you understand the financial effects.
Expensive Car Supplement Expands to EVs
The UK is changing its EV tax rules by expanding the Expensive Car Supplement. Starting in April 2025, all-electric vehicles (EVs) with a list price over £40,000 will incur an extra charge of £425 per year for five years.
This change mainly impacts buyers of premium models like the Tesla Model S, Audi Q8 e-tron, and some high-end Hyundai Ioniq 6 trims. These cars will have higher long-term costs than expected.
Leasing costs and insurance premiums may also rise, especially for business owners looking to upgrade their fleets. It’s important to consider the total cost of ownership, including tax, insurance, and fuel or electricity, to make a smart choice.
Small Business Owners and Fleets: Double Impact
For many small business owners and self-employed tradespeople, vehicles are essential tools. Whether you own one van or a fleet of company cars, the recent UK vehicle tax update adds new costs.
If you have five electric vehicles (EVs) that were once tax-exempt, you could now face an extra £975 in taxes each year. This amount increases for premium models due to the Expensive Car Supplement. Including petrol and diesel vehicles will only add to the financial strain.
That’s why businesses need to include these costs in their long-term budgets. Clarkwell & Co. provides accounting services for small businesses, including cost forecasting, tax planning, and fleet expense management to help you stay prepared.
April 2025 Deadline: Why Timing Matters
The April 2025 car tax deadline is approaching, and your choices before this date can affect your finances. Buyers who register electric cars before April 1, 2025, can benefit from current tax exemptions or lower rates.
If you plan to buy an electric vehicle or upgrade your business fleet, acting soon could save you money. Make your purchase wisely to avoid higher ownership costs after April.
This deadline will also impact the value of used cars. Vehicles registered just before the change may be more sought after in the resale market, possibly selling for higher prices. Planning ahead is the best way to keep your finances in check.
The Bigger Picture: How Will the Market React?
New tax rules are changing how people shop for cars. Early 2025 data shows that new vehicle registrations, especially electric vehicles (EVs), are going down. Tesla’s sales in the UK fell by 62% in April compared to last year. Many believe this is due to the new taxes coming soon.
These changes may cause consumers to hesitate before buying a new electric car, at least for now. The cost of owning a car in the UK now includes high taxes, especially for luxury models.
However, the market might stabilise later. Rising fuel prices, stricter emissions rules, and more Clean Air Zones will likely encourage people to choose EVs. Therefore, getting expert advice is crucial. Talking with experienced London accountants, like those at Clarkwell & Co., can help you make smart financial choices in this changing environment.
Personalised Help for Vehicle and Tax Planning in London
Navigating these changes can be tough, especially if you have multiple vehicles or run a business. New VED brackets, luxury car fees, and registration timing create a complicated situation.
Clarkwell & Co. can help. As expert accountants in London, we assist individuals and business owners in creating tailored vehicle strategies that consider current and future tax responsibilities. We also advise clients on including car tax in their personal and corporate financial plans.
Whether you have one car or a fleet of fifty, our small business accounting services are designed to simplify your finances and make them more predictable.
Staying in Control of the Road Ahead
To manage car ownership costs in the UK, stay informed and take action. Check your options now, find out which tax category your current or future vehicle belongs to, and include these costs in your personal or business budget.
Contact Clarkwell & Co., a trusted London accounting firm, for help with these changes. We can assist you with tax filing and planning to ensure a smooth financial and operational journey.
