Vehicle Excise Duty (VED) is changing, with rates set to increase for all cars, including electric vehicles. If you're a business owner with a vehicle or a fleet of vehicles, you’ll want to know about the upcoming changes as these changes could affect your operating costs, whether you own or lease vehicles. Read below to find out how the charges apply to your vehicle's band.
What is vehicle excise duty?
Vehicle Excise Duty (VED), commonly known as road tax, is a tax collected by the Driver and Vehicle Licensing Agency (DVLA) on vehicles that use public roads and parking spaces in the UK.
Today, the VED system is designed to promote environmental responsibility. It is closely linked to a vehicle’s environmental performance, with tax rates based on CO₂ emissions to encourage the use of more sustainable vehicles.
VED has been part of the UK system since the early 20th century. It was originally introduced to fund road construction and maintenance. The main legislation governing VED is the Vehicle Excise and Registration Act 1994.
Is vehicle excise duty increasing?
Yes, VED rates are set to increase. In the Autumn Budget 2024, the government announced that Vehicle Excise Duty will rise in line with the Retail Price Index (RPI) for 2025 to 2026.
This increase is designed to ensure that the revenue from VED remains consistent in real terms, reflecting inflation. While road tax has often risen in line with inflation, this change will notably impact electric vehicles.
How much will vehicle excise duty be from 01 April?
From 1 April 2025, there will be significant changes to VED, especially for electric vehicles (EVs). Currently, EVs are exempt from paying VED, but this will no longer be the case after the change. The standard rate has also increased to £195 for all cars registered after 1 April 2017.
Here's a breakdown of the key changes:
The removal of band A
Electric, zero, or low emission vehicles
Hybrid and low-emission vehicles
Vehicles registered before 1 April 2017
What does this mean for leased vehicles?
If you're leasing a vehicle, your contract might already include road tax. In that case, you won’t need to worry about paying separately for it. An operating lease for example generally covers road tax because you're renting the vehicle.
However, with some types of leasing agreements, such as hire purchase, contract hire, finance leases, personal contact purchase and personal contract hire, road tax is often not included in the rental payments. You will need to pay this separately.
Always check your contract or speak with your leasing provider to clarify whether road tax is included.
Is there anything your business can do to keep costs down?
The upcoming changes to Vehicle Excise Duty will impact business owners who operate vehicles, particularly those with electric or low-emission cars. By understanding the changes and planning ahead, you can make informed decisions about your fleet.
If you already have an electric car you can renew your road tax any time. This means that if you renew the tax on your electric car before 1 April 2025, you can enjoy road-tax-free motoring until it is renewed again in March 2026.
While lower emission vehicles will now not be exempt, they are still subject to lower rates in the first year. So investing in an electric vehicle can still result in some savings. If the upfront cost of an electric vehicle is a concern, you can consider financing the purchase. Financing options allow you to spread the cost over time, making it more manageable for your business.
With a Capitalise account, you can use our vehicle lookup feature. This allows you to search any UK-registered vehicle using its registration number, make, or model, and we'll provide you with an estimate of how much it could cost to finance the vehicle.
And if you’re ready to apply, we provide access to over 100 business lenders to help you find the right deal. Simply sign up to get started.