How do the 2025 VED changes affect you?
As we approach the start of the new tax year, there are a number of planned tax changes that are taking effect including: the increase in Vehicle Excise Duty (VED), or road tax as it’s more commonly known, as well as changes to Benefit-in-Kind (BiK) tax and the new Expensive Car Supplement – all of which can affect the costs associated with managing your company car fleet.
If your company car fleet is due to renew soon and you choose brand-new vehicles, then it’s likely you’ll feel the impact of the VED increases, as the uplifts are in reference to the first year the car is registered. For your employees who drive Electric Vehicles, the BiK tax is increasing from 2% to 3% for full electric, so they will also see a difference in their tax deduction from this month.
Depending on how you deliver your employee car benefit, the increase to National Insurance Contributions (NICs) for employers from 13.8% to 15% and National Living Wage increasing by approximately £1,400 for over 21s could also have an impact. If you provide your company cars to your employees via a salary sacrifice arrangement, then you might need to make some adjustments.
In this blog, we’ll run through all the changes that take effect from this April and explain what it means for your business.
1) Electric vehicles tax rates
2) Hybrid vehicle tax rates
Hybrids including plug-ins and self-charging are also set to see increases, for vehicles with CO2 emissions between 1-50g/km rates are rising from £10 to £110, and for those in the 51-75g/km category, the new cost is £130 up from £30. Similarly to the full EVs, these rates apply for the first year the vehicle is registered.
It’s a double blow for Plug-in Hybrid Electric Vehicles (PHEVs) with the announcement of Euro 6e-bis – the re-testing of PHEV emissions, which came into effect from 1 January this year. The re-testing will impact on BiK rates. Currently most PHEVs attract a 5%, 8% or 12% BiK rate because they emit less than 50g/km of CO2. For cars that are re-tested or are manufactured in line with the new standards, BiK rates are forecasted to increase significantly, in some cases CO2 emissions are predicted to more than double.
This could kick start a decline in PHEVs as company cars delivered via salary sacrifice, as they will no longer benefit from the BiK tax advantages.
3) Petrol and diesel tax rates
The biggest hit by VED increase are traditional fuel engines – petrol and diesel – these have now doubled.
Here’s a summary of all the increases by vehicle emissions.
| CO2 Emissions (g/km) | First Year Rate 2024 | First Year Rate 2025 |
|---|---|---|
|
0g/km |
£0 |
£10 |
|
1-50 |
£10 |
£110 |
|
51-75 |
£30 |
£130 |
|
76-90 |
£135 |
£270 |
|
91-100 |
£175 |
£350 |
|
101-110 |
£195 |
£390 |
|
111-130 |
£220 |
£440 |
|
131-150 |
£270 |
£540 |
|
151-170 |
£680 |
£1,360 |
|
171-190 |
£1.095 |
£2,190 |
|
191-225 |
£1,650 |
£3,300 |
|
226-255 |
£2,340 |
£4,680 |
|
Over 255 |
£2,745 |
£5,490 |
Data sources: Rates of Vehicle Tax | Autumn Budget 2024 – Page 132
If your company car fleet is always new cars, then you’ll need to start considering your EV options in the not too distant future, depending on how you deliver your employee car benefits and how long the contracts are. Otherwise, you face a large VED bill for a new fleet of traditional fuel vehicles. If you’re planning to go for a phased approach, then there’s no harm in putting a strategy for transitioning together in advance.
The optimum date for phasing out traditional fuel vehicles will vary from business to business and will depend on the driver population needs. With the deadline for the ban on petrol and diesel cars being manufactured now being just five years away, that could be only one more fleet cycle away for some businesses.
Other taxes are changing in April
Although not directly linked to the VED increase, there are some other motoring costs that take effect from April too.
Expensive Car Supplement
From 1 April, on top of the VED increase, all EVs over a £40,000 list price now have to pay the Expensive Car Supplement (ECS) too, which until this year hasn’t been applicable. This means an extra £410 to pay per vehicle for the first five years.
This payment doesn’t become applicable until the car enters its second year of registration but is a significant increase for EVs. As a business providing employee car benefits, the additional cost is likely to impact both you and your drivers.
Benefit-in-Kind tax
PHEV emissions are being retested, which means BiK tax is likely to increase.
Currently, most PHEVs attract a 5%, 8% or 12% BiK rate, but if the CO2 emissions for a PHEV model increase beyond 50g/km, as part of the revised test, then drivers face a BiK rate of at least 15%.
For fully electric vehicles, BiK tax has increased from 2% to 3% this April too, which impacts your employees and how much they pay to have the car benefit.
National Insurance increases
National Insurance Contributions (NICs) for employers are increasing from 13.8% to 15% on 6 April. These changes mean you’ll pay more in NICs for payroll, as well as Class 1A NICs which you pay on any employee benefits.
The increase is 1.2% points, but the percentage that this converts to in terms of contribution is actually closer to 9%. Let’s take a look at a payroll example to learn more about the cost increase:
| Employee annual salary | Tax year 2024/25 employer NIC | Tax year 2025/26 employer NIC | Difference in contribution |
|---|---|---|---|
|
£37,430* |
£5,165 |
£5,615 |
£450 |
*Average gross annual earnings for full-time employees in April 2024 according to the Office of National Statistics.
If you multiply the £450 difference in contribution by your employee population, your NI bill could increase significantly depending on the size of your business. While there’s little you can do to avoid these increases, if you can make savings elsewhere – such as starting to transition your company car fleet to electric – then you’ll have funds to begin offsetting the NI increase.
National Living Wage increases
The new rate for National Living Wage (21 and over) from 1 April is £12.21, which is a 77p annual rise in monetary terms, which is equal to an almost 7% increase. Below is an example to demonstrate another increase your business is facing this year.
| Employee hours per week | NLW for tax year 2024/25 | NLW for tax year 2025/25 | Difference in salary |
|---|---|---|---|
|
37.5 |
£22,308 |
£23,810 |
£1,502 |
Similarly to the NIC increase, you can’t avoid the NLW increase, but we’re here to help you generate savings as you navigate through the tax increases.
Looking for corporate fleet support?
Remember to consider your options before making a decision, as it could have an impact on your overall employee car benefits package.
By looking at what you do today and what you want to achieve in the future, we’ll help you determine the best set-up for your business. To learn more about our approach to employee benefits, read more about who we help.
If you’re looking for a fleet partner that can help you to effectively manage tax changes and the impact they have on your employee benefits, get in touch with us today.