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Major changes to vehicle excise duty (VED), commonly known as car tax, take effect this week, marking a significant shift for electric vehicle (EV) owners and drivers of high-emission petrol cars.
Electric Vehicles Lose Tax Exemption
From April 1, 2025, EVs will no longer be exempt from VED. Under the new policy, all EV owners will be subject to at least the standard rate of £195 from the second year onward after vehicle registration. Additionally, new EVs with a list price exceeding £40,000 will be liable for the “expensive car supplement,” which will cost £425 annually from years two to six of ownership.
The changes were initially announced in November 2022 under the Conservative government but are now being implemented by the Labour government. The Treasury’s rationale for the overhaul is to make the motoring tax system “fairer,” ensuring all road users contribute.
Impact on Petrol and High-Emission Vehicles
The changes also impact petrol and diesel vehicles, particularly high-emission models. Owners of the most polluting cars will see their first-year tax double, further incentivizing a shift toward greener alternatives.
Think tank the Energy and Climate Intelligence Unit (ECIU) warns that these new charges could “undermine consumer confidence” in EVs, despite their long-term cost benefits. Their research indicates that owners of the UK’s top 10 best-selling EVs still stand to save nearly £1,200 per year over a vehicle’s lifetime due to lower running costs compared to petrol models.
Understanding the New VED Rules
What is VED? VED is a tax on vehicle ownership, with rates based on a vehicle’s CO2 emissions and age.
How much is it? Rates vary. A new Volkswagen Golf R petrol model, for example, will incur a first-year charge of £220 and an annual rate of £190 thereafter.
What is changing? The tax exemption for EVs ends. New EV owners will pay £10 in the first year and £195 annually from year two onward.
What is the expensive car supplement? Also known as the luxury car tax, this applies to vehicles costing over £40,000. From April 1, the charge will be £425 annually for years two to six.
How does this impact the switch to electric cars? Critics argue that new VED charges could slow EV adoption, discouraging potential buyers despite long-term financial and environmental benefits.
With these sweeping changes now in place, UK motorists must prepare for a revised taxation landscape that could influence vehicle purchasing decisions for years to come.
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