There are a lot of upcoming changes to vehicle taxation due in 2025 so here’s a quick roundup and summary of how it may affect you:
1. Changes to Vehicle Excise Duty
From April, Electric Vehicles (EV’s) will no longer be exempt from Vehicle Excise Duty (VED), also known as Road Fund Licence (RFL).
New First Year Rates
- Zero emission cars will pay the lowest rate at £10 until 2029-30
- Rates for cars emitting 1-50 g/km of CO2, including hybrid vehicles, will increase to £110 for 2025-2026
- Rates for cars emitting 51-75 g/km of CO2, including hybrid vehicles, will increase to £130 for 2025-2026
- All other rates for cars emitting 76 g/km of CO2 and above will double from their current level for 2025-2026
- Zero-emission vans will move to the rate for petrol and diesel light goods vehicles, currently £335 a year for most vans
For EVs Registered Between 1st April 2017 and 31st March 2025
- These vehicles will transition to the current standard rate of £195 annually starting from April 2025.
Luxury Car Tax / Expensive Car Supplement (ECS)
- EVs registered on or after 1st April 2025 with a list price of £40,000 or more will also be subject to the Expensive Car Supplement (also called the Luxury Car Tax) of £425 annually – on top of VED – for the first 5 years following the first year of registration.
All new vehicle quotations produced by Day’s Fleet after 20th January 2025 include the new VED rates, anything quoted before that but registered before 1st April will be unaffected in the first year. If you already have a vehicle on order that will be registered after 1st April our team will be in touch shortly to discuss the increase in your rental as a result of the higher rates. For vehicles already on contract the difference between the quoted VED and the actual VED will be recharged to your organisation. More information is available here
2. Double Cab Pick Up’s to be treated as Company Cars
Double cab pick-ups will be treated as company cars for tax purposes, dramatically increasing the benefit-in-kind (BIK) tax paid by drivers and employers via NI. This reclassification will have an impact on businesses and drivers who rely on these vehicles for work purposes.
Effective from:
- 1st April 2025: For Corporation Tax, double cab pick-ups with a payload capacity of one tonne or more will be classified as passenger cars.
- 6th April 2025: For benefit in kind and employer NI, the same reclassification will apply for Benefit-in-Kind (BIK) taxation and profit deductions.
This shift means these vehicles will no longer benefit from the favourable tax treatment traditionally associated with light commercial vehicles. Notably, the current flat BIK rate of approximately £3,960 annually will be replaced by rates calculated under passenger car rules, likely resulting in higher tax obligations for users.
3. PHEV’s face BIK increase as stricter emissions test is introduced
Plug-in hybrid vehicles (PHEV’s) will face more rigorous emissions testing in 2025 in order to establish more accurate real-world data. As a result, the company car tax position for many PHEV models is likely to become less attractive.
From January 1st 2025, new and existing PHEVs will be subject to more rigorous emissions testing, which will likely result in higher BiK rates for many models, all new models launched in 2025 will have to have their CO2’s and range tested under the new system, all existing PHEV models in the market place have to have their new test results published before the end of 2025. These reforms arrive after long-standing criticism that the published fuel economy figures of PHEVs fail to reflect real-world performance, which in turn undermines their contribution to cutting manufacturers’ and fleets’ CO2 output.
A PHEV’s efficiency is calculated by testing its electric range and then its fuel consumption in hybrid mode. The electric range is used to produce a ‘utility factor’, a percentage of its total mileage that will be done on battery power. The longer the range, the lower the car’s CO2 emissions, though this assumes drivers plug PHEVs in, and real-world data gathered by the European Environment Agency suggests this isn’t always happening. Across a sample of 373,552 petrol PHEVs, drivers averaged tailpipe CO2 emissions of 134g/km against a published 38g/km – a 254% gap. Diesel PHEVs fared even worse, averaging 155g/km or 326% more CO2 than the 34g/km brochure average.
The new Euro 6e-bis test standard is designed to close that gap, by adjusting the utility factor to assume a much lower share of electric driving. In turn, PHEVs will need to offer a far longer electric range to get a significant reduction in CO2 emissions. Euro 6e-bis applies to new models launched from 1st January 2025, and all new car and van registrations 12 months later. Manufacturers have until 31st December 2025 to re-test their entire line-up, which means published CO2 emissions will change through the year. Increases will be sizeable with The International Council on Clean Transportation (ICCT) saying that CO2 emissions for a PHEV with a 70km (42-mile) electric range could more than double, from 45g/km to 96g/km.
CO2 emissions are set when the vehicle is manufactured, so re-testing means some vehicles will change between ordering and delivery – especially towards the end of the year so if you have PHEV’s on your fleet or on order we recommend you consider this and advise your drivers accordingly.
If you have any queries, please contact your Account Management Team or click here
