Written by Kim Upshall
Ward Goodman
March 18, 2025
Significant modifications to the UK’s vehicle taxation system are set to commence on 1 April 2025, affecting various vehicle categories. These changes, announced by Chancellor Rachel Reeves in the Autumn Budget, aim to promote the adoption of zero-emission and electric vehicles by restructuring tax bands based on CO₂ emissions.
Vehicle Excise Duty (VED) Adjustments
The restructuring of VED will result in substantial increases for high-emission vehicles:
- High-Emission Vehicles: Cars emitting over 255g/km of CO₂ will see their first-year VED double from £2,745 to £5,490.
- Average Emission Vehicles: Models like the Volvo XC90, with average emissions, will experience a rise from £1,095 to £2,190.
These adjustments are designed to strengthen incentives for purchasing zero-emission and electric cars.
Introduction of VED for Electric Vehicles
Electric vehicles (EVs), previously exempt from VED, will now incur charges:
- Newly Registered EVs: Will pay £10 in the first year, increasing to £195 annually from the second year onwards.
- Expensive Car Supplement: EVs costing more than £40,000 will be subject to an additional £425 annually between the second and sixth years of registration.
Adjustments for Hybrid Vehicles
Hybrid vehicles will also face changes:
- Removal of Discount: The previous £10 annual discount will be removed, resulting in a standard rate of £195.
This aligns with the government’s strategy to promote zero-emission vehicles by adjusting tax incentives for hybrids.
Reclassification of Double Cab Pick-Up Trucks
A notable change is the reclassification of double cab pick-up trucks:
- Previous Classification: These vehicles were categorised as light commercial vehicles with a flat Benefit-in-Kind (BiK) tax rate of £3,960 annually for company drivers.
- New Classification: Effective 6 April 2025, double cab pick-up trucks will be treated as cars for tax purposes.
This reclassification impacts several tax aspects:
- Benefit-in-Kind (BiK) Tax: BiK rates will be calculated on a sliding scale based on CO₂ emissions, with high-emission diesel models facing the steepest increases. Consequently, some drivers could see their tax bills rise significantly.
- Capital Allowances: Businesses will no longer be able to claim full tax relief on the purchase of these vehicles as they could when they were classified as commercial vehicles.
- Lease Payments: For leased vehicles with CO₂ emissions over 50g/km, only 85% of the lease payments are deductible for corporation tax (or income tax for sole traders/partnerships). This rule will apply to double cab pick-ups from April 2025, subject to transitional arrangements.
Transitional Arrangements
To mitigate immediate impacts:
- Existing Vehicles: Transitional BiK arrangements will apply for employers that have purchased, leased, or ordered a double cab pick-up before 6 April 2025. This allows the existing BiK treatment to continue until the earlier of disposal, lease expiry, or 5 April 2029.
Business Implications
Businesses operating fleets should assess the impact of these tax changes on their operations:
- Increased Costs: High-emission vehicles will incur higher taxes, prompting a re-evaluation of fleet composition.
- Transition to Sustainable Options: Companies are advised to consider transitioning to more environmentally friendly vehicles to mitigate increased tax burdens.
These comprehensive changes to vehicle taxation reflect the UK’s commitment to reducing carbon emissions and promoting sustainable transportation. Drivers and businesses alike must stay informed and adapt to the evolving tax requirements to manage their financial obligations effectively.
