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Vehicle Excise Duty Increase – What Does it Mean to Automotive Dealers?

With upcoming increases to road tax, find out what these changes means to your business and how you can take advantage of the existing rates if you act quickly.

Since the new UK Labour Government came into power in July 2024, there have been a number of announcements made – mostly in the Autumn Budget – around the automotive industry. Many of these changes are taking effect at the start of the new tax year, 1 April 2025, so now is the time to take action and minimise the impact on your company car costs.  

In this blog, we’ll primarily cover the increase in Vehicle Excise Duty (VED), or road tax as it’s more commonly known, but we’ll also explore how other changes to Benefit-in-Kind tax and the Expensive Car Supplement can further impact the cost of running your car benefit scheme.  

If you’d like to discuss further, get in touch or contact your account manager.

What are the VED changes?

VED rates are set in-line with Retail Price Index (RPI) inflation and the cost for all vehicle types is increasing this year. Electric Vehicles (EVs) will no longer be exempt from road tax, hybrids will see a significant increase, but the biggest hit are traditional fuel engines – petrol and diesel – which will have their VED doubled from April 2025. 

These uplifts are all in reference to the first year the car is registered, after that the standard VED for all cars from the second year onwards is £195.   

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

What is VED?

In simple terms, VED is a tax applied to almost all vehicles on UK roads, primarily based on their emissions, so essentially, the lower the emissions, the lower the VED. As a business running company cars, the cleaner your vehicles, the less VED tax you’ll likely pay. 

What do the increases mean for your business with an existing CBS car scheme?

For your employees affect vehicle choice, as with the VED increase, some models may not be viable options, so it could impact which cars you can add to your choice list. 

For your business, you’ll see the biggest impact in the buyback figures, which could then have a knock-on effect for your used car sales pipeline.  

Navigating the VED changes with an existing CBS car scheme?

In the short-term, encourage your employees to quote for a new vehicle as soon as they’re able to. If you order, register and deliver their car before the new tax year, you’ll lock in the repayment price for your employees and the buyback amount for your business.  

The more vehicles you can order on your CBS car schemes, the more potential savings. Remember, some cars registered can also count towards your registration targets, and with the ZEV mandate stating that 28% of cars registered this year must be 0g/km emissions, getting ahead in Q1 would be a good start to the year.  

Long-term, you’ll need to recognise how the upcoming VED changes will impact your company cars and incorporate these into your strategic planning to manage vehicle costs effectively. 

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

On top of the VED increase, all Electric Vehicles (EVs) over a £40,000 list price will 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

Plug-in Hybrid Electric Vehicle (PHEV) emissions are being retested, which means Benefit-in-Kind (BiK) tax could increase on PHEVs with the results. 

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%. 

Your employees ordering new cars on a CBS car scheme may see an increase in the car’s BiK tax rate if the vehicle is retested between the point of order and delivery.  

For fully electric vehicles, BiK tax will increase from 2% to 3% this April too.  

Want to make savings while you can?

While the increases to VED and the other taxes are inevitable, there’s still an opportunity to make savings in the short term, if you act quickly.  

If you’re a franchised car dealer with an existing scheme, take advantage of the current VED and buyback rates by securing orders of CBS cars before the April changes come into effect. Remember, there’s many benefits for your business when using a CBS scheme for your company cars.  

We’re always on hand to help, so if you need any support, get in touch or contact your account manager.