April 2025 Vehicle Tax Changes:

The UK government is yet again implementing significant changes to vehicle tax regulations effective from April 2025, aiming to promote environmental sustainability and adapt to the evolving automotive industry. These changes will impact businesses that use company vehicles, especially those incorporating electric vehicles (EVs) into their fleets. Understanding these updates is important if you want to remain tax effective. 

1. Introduction to the April 2025 Vehicle Tax Changes

The upcoming changes to vehicle tax regulations are part of the government's broader strategy to encourage the adoption of low-emission vehicles and ensure fair taxation across all vehicle types. These adjustments will affect both new and existing vehicles, with specific implications for electric vehicles and company car taxation.​

2. Vehicle Excise Duty (VED) Adjustments

Vehicle Excise Duty, commonly known as road tax, is undergoing notable changes:

• Zero-Emission Vehicles Registered On or After April 1, 2025: New zero-emission cars will incur a first-year VED rate of £10. From the second year onwards, these vehicles will be subject to the standard annual rate, which is set at £195. 

• Zero-Emission Vehicles Registered Between April 1, 2017, and March 31, 2025: Owners of these vehicles will start paying the standard annual VED rate of £195 from April 2025. ​

• Alternative Fuel Vehicles: The existing £10 VED discount for hybrid and alternative fuel vehicles will be removed. Consequently, these vehicles will also be subject to the standard rate of £195. ​

3. Company Car Tax (Benefit-in-Kind) Revisions

The Benefit-in-Kind (BiK) tax rates for company cars are set to increase:​

• Zero-Emission Vehicles: The BiK rate for zero-emission vehicles will rise from the current 2% to 3% starting April 6, 2025. This rate is scheduled to increase by 2 percentage points annually, reaching 9% by the 2029/2030 tax year. 

• Vehicles Emitting 1g to 50g CO₂/km: For vehicles within this emission bracket, the appropriate percentage will be 18% in 2028/2029 and 19% in 2029/2030.

• Other Emission Bands: All other emission bands will see a 1 percentage point increase per year in 2028/2029 and 2029/2030, with a maximum appropriate percentage of 39% by 2029/2030.

4. Van Benefit Charge and Fuel Benefit Charges

Adjustments to van benefit charges and fuel benefit charges for both cars and vans are as follows:

• Van Benefit Charge: The flat-rate van benefit charge will increase to £4,020 from April 6, 2025.

• Car Fuel Benefit: The multiplier for calculating the car fuel benefit will rise to £28,200.

• Van Fuel Benefit: The flat-rate van fuel benefit charge will increase to £769.

5. Implications for UK Businesses

These tax changes have several implications for businesses:​

• Financial Planning: Businesses should anticipate increased costs associated with company vehicles, particularly with the removal of VED exemptions for electric vehicles and the rise in BiK rates.​

• Fleet Management Strategies: To mitigate higher tax liabilities, businesses might consider transitioning to vehicles with lower emissions or investing in zero-emission vehicles before the new rates take effect.​

• Sustainability Goals: Aligning fleet choices with environmental objectives can provide both tax advantages and support corporate social responsibility initiatives.​

6. Preparing for the Transition

To adapt to these changes effectively:

• Review Current Vehicle Policies: Assess existing vehicle policies to ensure they align with the upcoming tax changes and consider updating them to reflect new tax implications.​

• Consult Tax Professionals: Engage with tax advisors to understand the specific impacts on your business and develop strategies to optimise tax efficiency.​

• Educate Employees: Inform employees about how these changes may affect their company car benefits and explore alternative options if necessary.​

To understand how these changes specifically impact your business and to develop tailored strategies, schedule a consultation with our Accountancy Firm today. Our experts are ready to guide you through this transition and help your vehicle tax planning.