Vehicle Excise Duty (VED) rates are changing. Here’s what fleet operators need to know.
In the recent 2024 Autumn Budget, Rachel Reeves, Chancellor of the Exchequer outlined several tax changes that will directly affect the fleet and wider automotive sector.
This included changes to the Vehicle Excise Duty (VED), effective from April 2025. VED rates will increase in line with RPI inflation, incorporating new cars registered on or after April 1st 2025. A further measure was to increase the Expensive Car Supplement threshold from £40,000 for EVs.
In this article, we’re exploring the VED and Expensive Car Supplement (ECS) changes in depth, helping fleet managers take short-term actions that will help them better manage long-term operational costs.
What is the Vehicle Excise Duty (VED)?
Put simply, it’s a tax applied to virtually all the vehicles on the UK roads, with levies applied based predominantly on vehicle emissions. At it’s most basic level:
- Lower emissions = Lower VED
So, the cleaner the vehicles you put on the road, the less tax you will likely pay. For fleet managers, emissions data should be a critical factor in vehicle selection. For example, hybrid and electric vehicles are often preferred due to their lower VED rates, reducing business operational costs.
What’s changing in Vehicle Excise Duty for 2025?
The standard VED rates are set to rise in line with RPI inflation, and the Government will introduce changes to the VED first-year rates for new cars registered on or after 1 April 2025. This means:
- Zero-emission cars will pay the lowest first year rate at £10 until 2029 to 2030
- Cars emitting 1–50g/km CO2 (including hybrids) will increase to £110.
- Cars emitting 51–75g/km CO2 (including hybrids) will increase to £130.
- Cars emitting 76g/km CO2 and above the current rates will double.
- Zero-emission vans will move to the rate for petrol and diesel light goods vehicles, currently £335 a year for most vans.
What is the Expensive Car Supplement?
The Expensive Car Supplement (ECS) was introduced in April 2017 under the Vehicle Excise Duty umbrella. It mandates that owners of cars with a list price of over £40,000 pay an extra £410 p/annum.
What’s changing in Expensive Car Supplement for 2025?
Previously exempt from the ECS, from 2025 this electric vehicle exemption will end.
The Chancellor has not ruled out increasing the ECS threshold from £40,000 for electric vehicles to make them more appealing, given their higher costs than internal combustion engine vehicles. However, this will only be considered in “a future fiscal event.”
Should I be rethinking plans to bring more electric vehicles into my fleet?
No, it’s important to consider the bigger picture and the true value electric vehicles can bring to your fleet.
First and foremost, consider Total Cost of Ownership (TCO) when it comes to electric vehicles, where lower running costs and long-term savings can be significant (consider analysis from the Energy and Climate Intelligence Unit found that the top 10 selling petrol cars of 2023 could cost around £700 a year more to run than their EV equivalents), whilst also recognising the positive contributions fleet electric vehicle adoption can make to companies’ wider environmental, social and governance goals.
Remember, EVs benefit from other tax breaks too:
- Class 1A NIC is lower because of the favourable BiK% - this could be significantly more than £100pm for some cars;
- ICE cars will be subject to the lease rental restriction which means there's an effective corporation tax charge associated with their use.
What actions should fleet managers be considering?
In taking swift, decisive short-term actions, fleet managers can help their companies to navigate the VED and ECS changes with effective long-term cost management.
Here’s our recommendations:
Understand the cost to your company:
- Recognise how the upcoming road tax changes will affect the vehicles in your fleet and incorporate these into strategic planning to manage your vehicle cost effectively.
Plan ahead for vehicle orders:
- Start inquiring about lead times now, as delays in placing orders may increase costs.
- Adjust vehicle changeover plans to register before April 2025, potentially saving hundreds of pounds per vehicle in the first year.
Consider lease cycles:
- For fleets on typical three- or four-year leases, account for the long-term cost implications of the tax changes when planning future orders.
Remain focused on EV adoption:
- TCOS is still heavily weighted in favour of electric vehicles, and to help drive the transition to EVs the differentials in VED first-year rates between EVs and all other cars will be widened
Seek expert advice:
- Whether you are an existing Gofor customer or considering your fleet options, we can help you understand the financial and operational implications of these changes and ensure you are on top of fleet optimisation.
At Gofor, we have extensive experience helping businesses with all aspects of fleet policy, transitioning to electric vehicles, managing complex vehicle tax changes, and much more. We’re here to support you in every aspect of your fleet lifecycle.
Get in touch to arrange a fleet consultation
For the latest information on all things Vehicle Excise Duty and Expensive Car Supplement, visit gov.uk
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