At Fleet Evolution, we’ve been championing electric cars since 2011. We speak to everyone – from those who overstate EV range and performance to those who prefer the scaremongering of the Daily Telegraph and GB News over reality. Since 2012, we’ve seen electric cars swing from tax breaks to tax hikes and back again. We’ve always said that at some point, the tax benefits of going electric would start to diminish. Well, come April, that’s the beginning. But why? And how will the UK car tax changes in 2025 affect you?
In April, four tax changes will impact electric cars, two of them significantly. Let’s break it down.
Road Tax Changes 2025 at a Glance
| Change | What it means |
|---|---|
| Electric cars now pay Vehicle Excise Duty (VED) | Standard rate of £195 per year |
| New zero-emission cars | £10 first-year VED before moving to the standard rate |
| Cars over £40,000 | Expensive Car Supplement applies |
| Company car drivers | Benefit-in-Kind rises to 3% |
| Employers | National Insurance changes affect salary sacrifice savings |
Who Will Be Affected by the 2025 Road Tax Changes?
The April 2025 Vehicle Excise Duty (VED) changes affect almost every type of driver in the UK, although the impact depends on the type of vehicle you own and when it was first registered.
The biggest changes apply to:
- Electric vehicle owners
- Drivers buying a new electric car after April 2025
- Company car users
- Employees using salary sacrifice schemes
- Buyers of new petrol, diesel and hybrid cars
- Owners of vehicles costing more than £40,000
Understanding which category you fall into makes it much easier to calculate how much you’ll pay after the new rules come into force.
Road Tax (RFL): A Level Playing Field
Road Tax, also known as RFL (Road Fund Licence), is often misunderstood as funding road repairs. However, the worsening pothole crisis makes it clear this isn’t the case. Instead, Road Tax is a general government revenue stream allocated across various budgets, from infrastructure to pensions.
Historically, EVs have been exempt from Road Tax, 2025 brings a new story though. Starting in April, they will face the same charge as other road users, starting at £195 annually. For new EVs (from 1st April onwards ) drivers will pay just £10 for their first year, rising to the standard rate afterwards.
While this may feel unfair, I’d argue it’s fair! Given that polluting vehicles already pay more to drive into many cities. Also, rumours of a “pay-per-mile” road charging system are circulating (possibly the fairest way to charge?) though this is still far off.
UK Car Tax changes in 2025
Alongside the road tax 2025 changes, the government is reintroducing a “Luxury Car Tax”: a £425 annual surcharge on vehicles priced over £40,000. This applies to cars registered from 1st April 2025 onwards, raising the Road Tax on these vehicles to £620 per year.
What’s surprising is the outdated threshold. In 2012, £40,000 genuinely represented luxury; today, even my wife’s Skoda Enyaq surpasses this figure, as do some internal combustion vehicles like certain VW Golfs!
Nevertheless, the government is proceeding, with one exception: cars aged six years or older are exempt – strangely. This could spark increased demand for six-year-old electric cars in the future, given their longevity compared to traditional vehicles.
Employer Impacts: NI Contributions & Benefit-in-Kind
Employers offering salary sacrifice or company car schemes will feel a dual impact from changes to National Insurance Contributions (NI) and Benefit-in-Kind (BIK) rates.
Salary Sacrifice: Employers can still enjoy NI savings, which we recommend passing back to employees to maximise the benefit. However, the rising minimum wage may reduce eligibility. To navigate this, consider combining salary sacrifice with net deductions to expand options.
Benefit-in-Kind: BIK rates for company cars are rising to 3% from April, though they remain disclosed through 2030, peaking below 10%. These rates still represent significant savings compared to traditional alternatives.
If you want to find out more information about the scheme, electric cars, or the changes coming in April 2025, get in touch below. Our Driverline and Onboarding teams are happy to help your business go green or help you into a greener car!
Employers Introducing the Scheme
Employees Going Green
Leasing Considerations
For personal leases, check the fine print. Some include Road Tax, others do not. If your chosen vehicle costs over £40,000, consider compromising on optional extras to ensure delivery before April – it could save you £425 a year!
Think about prioritising essential features over luxury add-ons to stay within the threshold. Additionally, keep an eye on leasing terms, as some providers might adjust their offerings closer to the tax changes. Planning ahead now can make all the difference.
Hidden Budget Easter Eggs
Here are the opportunities hidden within the changes:
Act Before April to Save – If you’re planning to purchase a vehicle over £40,000, acting before April could save you up to £2,000 over the next five years. Vehicles registered before this date won’t be subject to the new UK car tax changes in 2025 making early action a smart financial move for those looking to avoid additional costs.
Maximise Savings with Salary Sacrifice – By combining salary sacrifice with the new Road Tax changes, employees can save up to 45% on rising costs, while businesses ease the burden of increased National Insurance. It’s a win-win approach that maximises benefits for both employers and employees, especially with schemes tailored to reduce overall expenses.
Benefit-in-Kind Savings Locked in – Even with the April increase to 3%, Benefit-in-Kind (BIK) rates for electric vehicles remain a fantastic deal. Rates are now disclosed through 2030, peaking below 10%, which ensures significant long-term savings compared to traditional vehicle alternatives.
Six-Year-Old EVs: A Hidden Gem – Electric vehicles aged six years or older avoid the premium “Luxury Car Tax” entirely. With EVs often outlasting traditional cars in longevity and performance, this makes six-year-old models an excellent option for those seeking affordability without compromising on quality.
Final Thoughts
If you’re considering a new car, now is the time to act. A brand-new EV on salary sacrifice often costs the same as keeping a five-year-old ICE vehicle on the road. By committing early, with many stock options available, you’ll avoid the April RFL increase, which is already factored into most schemes. Remember, even when a cost is “hidden,” you’ll ultimately pay for it elsewhere. Plan ahead to save!
Finally, from April 2025, brand-new zero-emission cars will face a modest £10 first-year tax, ending years of exemption for vehicles producing less than 50 g/km. As always, being proactive is the key to staying ahead in the changing motoring landscape.
With all the changes is salary sacrifice even worth it in 2025?
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Fleet Evolution offers innovative salary sacrifice schemes, helping employers and employees save on costs while promoting eco-friendly electric cars. Enjoy easy setup, free maintenance, and swift activation for any company size.