As we work through the final quarter of the 2024/2025 tax year, we plan for April, when new tax regulations will take effect. For those thinking about a new vehicle, the following outlines the upcoming changes, including Vehicle Excise Duty, the Expensive Vehicle Supplement, and the new Benefit in Kind (BIK) rates.
Vehicle Excise Duty
Vehicle Excise Duty (VED), also known as Road Tax, is determined by the CO2 emissions (g/km) of the vehicle. Electric vehicles (EVs), which produce no emissions, are currently exempt from the first-year rate, standard rate, and premium rate.
First Year Rates
In the Autumn Budget the UK Government confirmed the VED First Year Rates for new cars registered on or after 1 April 2025:
- Zero-emission cars will incur the lowest first-year rate at £10 until 2029-30.
- Rates for cars emitting 1-50g/km of CO₂, including hybrids, will increase to £110 for 2025-26.
- Rates for cars emitting 51-75g/km of CO₂, including hybrids, will increase to £130 for 2025-26.
- All other rates for cars emitting 76g/km of CO₂ and above will double from their current level for 2025-26
These changes will take effect from 1 April 2025. If your new Zero Emission car is registered by 31st March 2025, the first year VED is £0.
VED Rates from 1 April 2025:
| CO2 | 01 April 2024 | 01 April 2025 | Increase |
| 1-50 | £10 | £110 | £100 |
| 51-75 | £30 | £130 | £100 |
| 76-90 | £135 | £270 | £135 |
| 91-100 | £175 | £350 | £175 |
| 101-110 | £195 | £390 | £195 |
| 111-130 | £220 | £440 | £220 |
| 131-150 | £270 | £540 | £270 |
| 151-170 | £680 | £1,360 | £680 |
| 171-190 | £1,095 | £2,190 | £1,095 |
| 191-225 | £1,650 | £3,300 | £1,650 |
| 226-255 | £2,340 | £4,680 | £2,340 |
| 255+ | £2,745 | £5,490 | £2,745 |
Second Year Rates
Expensive Car Supplement
In April 2017, the UK Government implemented a new supplemental tax on vehicles priced over £40,000, commonly referred to as the ‘luxury car tax,’ although its official name is the ‘Expensive Car Supplement.’
Under the Expensive Car Supplement, any car that costs more than £40,000 when purchased new incurs an additional annual fee of £410 for five years, starting from the first Vehicle Excise Duty (VED) payment.
The £40,000 threshold is based on the manufacturer's official list price including optional extras, rather than the actual price paid by the buyer, which may factor in manufacturer discounts or promotions.
It’s important to note that the Expensive Car Supplement does not apply to new electric vehicles (EVs) registered before 1 April 2025. However, from 1 April 2025, any new EVs priced over £40,000 will be subject to this tax.
We expect from 1 April 2025, the expensive car supplement will rise to £425 a year because all VED rates rise each year in line with the Retail Price Index.
The Expensive Car Supplement effects used cars, if they originally had a list price of over £40,000 this tax continues until the vehicle reaches it's sixth year of registration.
Find your new, fully electric car
What is the impact of these changes?
If an electric car is registered by 31 March 2025, the first-year Vehicle Excise Duty (VED) will be £0. From the second year onward, a fee of £195 will apply, with NO additional expensive vehicle supplement for cars valued over £40,000.
For electric cars registered from 1 April 2025, with an on-the-road list price below £40,000, a £10 first-year VED will be charged, followed by a fee of £195 per year starting in the second year.
If an electric car registered from 1 April 2025, exceeds the £40,000 list price threshold, the VED for the second year will be £195, plus an additional £410 expensive vehicle supplement for each subsequent year (up to five years).
Therefore, for electric cars exceeding £40,000 that are registered from 1 April 2025 under a typical three-year lease agreement, there will be an additional VED cost of £1,210 compared to a vehicle registered before 1 April 2025. This results in a monthly increase of £36.
For those considering an Electric Van, the rise in Vehicle Excise Duty (VED) from £0 to £335 annually will result in an additional £28 per month. Read more about upcoming tax changes for vans by clicking here.
Benefit-in-Kind Rates (Company Car Tax)
During the 2025/2026 Tax Year Zero-emission company cars that are used for personal journeys, will incur a 3% Benefit-in-Kind rate, an increase of 1% from 2024/2025.
| CO2 Emissions (g/km) |
Appropriate Percentage | |||||
|---|---|---|---|---|---|---|
| Tax Year | ||||||
| 2022-25 | 2025-26 | 2026-27 | 2027-28 | 2028-29 | 2029-30 | |
| 0 | 2% | 3% | 4% | 5% | 7% | 9% |
For a complete breakdown of BiK rates by year, refer to our BiK rate table.
Example
Volkswagen ID.4 210kW Match Pro 77kWh 5dr Auto | Electric
P11D Value = £44,305
Co2 Emissions = 0g/km
BIK Rates:
| 2024/2025 | 2025/2026 | |
| BIK % | 2% | 3% |
| Taxable Benefit | £886.10 | £1,329.15 |
| 20% Tax Payer |
||
| Annual | £177.24 | £265.83 |
| Monthly | £14.77 | £22.15 |
| 40% Tax Payer |
||
| Annual | £354.44 | £531.66 |
| Monthly | £29.54 | £44.31 |
For more examples of these rate changes, and how this will impact you or your employees by click here.