April 2025 Car Tax Increase | What Drivers Need to Know?

From 1 April 2025, registered keepers of electric, zero, or low-emission cars, vans, and motorcycles will be required to pay vehicle tax similarly to those who own petrol and diesel vehicles.

This marks a significant policy shift, impacting both new and existing vehicles. These changes reflect the government’s broader initiative to create a fairer tax system while encouraging environmental responsibility.

Whether you’re an electric car owner, considering a hybrid, or driving a traditional petrol vehicle, understanding how these changes will affect you is essential. Here’s everything you need to know about the upcoming car tax reforms.

What is the April 2025 Car Tax Increase?

The April 2025 car tax increase represents a transformative change in the UK’s Vehicle Excise Duty (VED) system.

This reform introduces a uniform approach to taxing all vehicle types, including electric, zero-emission, and low-emission vehicles, alongside traditional petrol and diesel cars. Here’s what you need to know:

1. Elimination of VED Exemptions for Electric Vehicles

• From 1 April 2025, electric, zero-emission, and low-emission vehicles will no longer be exempt from VED.
• Owners of these vehicles will begin paying vehicle tax, aligning them with the system for petrol and diesel cars.

2. Abolishment of Band A

• Band A, which currently applies a £0 tax rate to vehicles with zero or very low emissions, will be removed.
• Vehicles previously in Band A will transition to the first payable band.

3. Changes by Vehicle Type

Newly Registered Electric Vehicles (After 1 April 2025):

• Pay £10 in the first year and pay the standard rate of £195 annually from the second year onwards.

Electric Vehicles Registered Between 1 April 2017 and 31 March 2025:

• These vehicles will immediately transition to the standard rate of £195 annually.

Older Electric Vehicles (Registered Between 1 March 2001 and 31 March 2017):

• Move to the first payable band, incurring an annual tax of £20.

4. Impact on Hybrids and AFVs

• The £10 annual discount for hybrid and alternatively fueled vehicles will be removed.
• VED will be based on CO₂ emissions or the standard rate, depending on registration dates.

These reforms ensure that all vehicle owners contribute fairly to road maintenance and infrastructure funding.

By taxing zero-emission and low-emission vehicles, the government addresses the revenue gap while encouraging greener transport options for the future.

How the Changes Will Affect Your Vehicle?

The April 2025 car tax changes will impact various vehicle types differently based on their emission levels, registration dates, and fuel types. Below is an in-depth breakdown of how these reforms will affect you as a vehicle owner:

Electric, Zero, or Low-Emission Cars

1. Vehicles Registered On or After 1 April 2025

Starting in April 2025, newly registered electric, zero, or low-emission cars will no longer enjoy full VED exemptions. Instead:

• First-Year Rate: Owners will pay a nominal first-year tax of £10, aligning with the lowest rate of VED.
• Standard Rate (from the second year onwards): Following the first year, the tax will increase to the standard annual rate of £195.

This move aims to introduce a more equitable tax system across all vehicle types, reflecting the growing adoption of electric vehicles.

2. Vehicles Registered Between 1 April 2017 and 31 March 2025

For electric or low-emission vehicles registered during this period:

• These cars will transition directly to the standard rate of £195 annually.
• This change eliminates the zero-tax advantage that had been in place for such vehicles, representing a notable shift for existing owners.

3. Vehicles Registered Between 1 March 2001 and 31 March 2017

Older electric or low-emission vehicles will face a more modest increase:

• These vehicles will move to the first payable VED band, which carries an annual tax rate of £20.
• While this adjustment introduces a cost for previously exempt vehicles, it remains significantly lower than the rates for newer models.

Hybrid and Alternatively Fuelled Vehicles (AFVs)

Hybrid and AFV owners will also experience changes in how their vehicles are taxed:

• Removal of the £10 Annual Discount: Historically, hybrids and AFVs enjoyed a small discount compared to traditional petrol or diesel vehicles. This discount will be discontinued.
• Rates Based on Registration Date:
  • Registered Before 1 April 2017: The tax rate will depend on the vehicle’s CO₂ emissions, which determine its VED band. This is consistent with the current system for petrol and diesel vehicles.
  • Registered On or After 1 April 2017: Owners will pay the standard rate of £195 annually, removing any preferential treatment for hybrids.

This adjustment reduces the cost disparity between hybrids and other vehicle types, encouraging a shift towards full electrification.

Electric Vans

Owners of electric vans, which are often used in business fleets or as personal transport, will also see changes:

• These vehicles will move to the standard annual rate for light goods vehicles.
• While details vary based on the specific model, this change ensures electric vans are taxed similarly to their traditional fuel counterparts, aligning with the broader tax reforms.

Electric Motorcycles and Tricycles

Electric motorcycles and tricycles, which previously benefitted from zero or minimal tax, will now:

• Move to the annual rate applicable to the smallest engine size in the current VED structure.
• This change introduces a consistent tax structure for two- and three-wheeled vehicles regardless of fuel type.

Additional Rate (Expensive Car Supplement)

High-value electric and zero-emission vehicles will also be subject to an additional charge:

• Applicability: Vehicles registered on or after 1 April 2025 with a list price exceeding £40,000.
• Supplement Details:
  • Owners will pay the standard rate of £195.
  • An expensive car supplement will be added, applicable for the first five years starting from the second licence.
  • This supplement aligns with existing policies for luxury petrol and diesel cars, ensuring consistency across the board.

This measure targets high-end electric vehicles, balancing affordability and revenue generation.

How Will the Changes Affect UK Drivers?

The April 2025 car tax reforms bring notable financial and practical changes for drivers across the UK.

These changes aim to balance environmental incentives with the need for a sustainable tax system. Here’s a closer look at how they will impact UK drivers, depending on the type of vehicle they own and their driving habits.

1. Electric and Zero-Emission Vehicle Owners

Electric and zero-emission vehicles, which have been exempt from Vehicle Excise Duty (VED), will now face annual taxes for the first time.

Immediate Financial Impact:

• Owners of newly registered electric cars (from 1 April 2025) will pay £10 in the first year, rising to £195 annually from the second year.
• Existing electric vehicles registered after 1 April 2017 will immediately switch to the £195 annual rate.
• Older electric cars (registered between 1 March 2001 and 31 March 2017) will move to the first payable band at £20 per year.

End of Zero-Tax Advantage:

• The reforms remove one of the key financial incentives for buying electric cars, which may make them less appealing to cost-conscious consumers.

High-End Vehicle Costs:

• Drivers purchasing luxury electric cars (over £40,000) will face an additional “expensive car supplement,” adding further costs during the first five years of ownership.

For electric vehicle owners, this marks the end of the free ride, both literally and figuratively. While running costs remain lower than those of petrol or diesel cars, budgeting for annual taxes is now essential.

2. Hybrid and Alternatively Fuelled Vehicle (AFV) Owners

Hybrid and AFV owners will no longer benefit from the £10 annual discount they previously enjoyed under the current VED system.

Higher Costs for Hybrids:

• Hybrids registered after 1 April 2017 will pay the standard rate of £195 annually, removing any cost advantage compared to petrol or diesel vehicles.
• Older hybrids (registered before 1 April 2017) will continue to pay rates based on CO₂ emissions, potentially leading to higher costs for high-emission models.

Encouragement to Transition to Full EVs:

• By aligning hybrid and AFV taxes more closely with other vehicles, the government aims to nudge drivers toward fully electric options.

For hybrid owners, the removal of tax discounts and increased rates may reduce the financial appeal of these vehicles, especially when compared to more cost-effective electric models.

3. Petrol and Diesel Vehicle Owners

Petrol and diesel car owners will also feel the impact of the reforms, particularly those with high-emission vehicles.

Higher Costs for High-Emission Vehicles:

• The first-year VED rates for high-emission vehicles will rise further, with exact increases depending on the vehicle’s CO₂ output.
• Annual standard rates remain higher than for electric or hybrid vehicles, reflecting their greater environmental impact.

Reduced Appeal of Traditional Vehicles:

• The reforms continue to penalise petrol and diesel vehicles, particularly older models, encouraging drivers to consider alternatives.

For drivers of petrol and diesel cars, these changes reinforce the trend of higher costs associated with fossil fuel vehicles.

4. Business Fleet Owners and Operators

Businesses with large vehicle fleets will face increased operating costs, particularly for petrol, diesel, or hybrid vehicles.

Impact on Electric Fleets:

• While electric vans and fleet vehicles remain cheaper to operate than their petrol counterparts, they too will be subject to the new VED rates.
• Electric vans will move to the standard light goods vehicle tax rate.

Adjustment Strategies:

• Businesses may need to reconsider fleet composition, replacing older models with newer, more tax-efficient options.

For fleet operators, managing the financial impact of these changes will require strategic planning and possible investment in cleaner, low-emission vehicles.

5. Additional Costs for High-Value Vehicles

Drivers purchasing luxury vehicles—electric or otherwise—with a list price exceeding £40,000 will face significant additional costs.

Expensive Car Supplement:

• These cars will incur the standard rate of £195 plus an annual supplement for the first five years, starting from the second licence.
• This surcharge mirrors existing policies for high-value petrol and diesel vehicles.

Owners of premium vehicles will need to budget for this additional expense, especially as the luxury car market shifts towards electric models.

Why Is the UK Government Increasing Car Taxes in 2025?

The shift in car tax policy is driven by several key factors:

• Revenue Equalisation: With electric vehicles growing in popularity, the government seeks to offset the decline in fuel tax revenue.
• Environmental Goals: The uniform tax structure discourages high-emission vehicles while maintaining incentives for cleaner alternatives.
• Funding for Infrastructure: VED contributions are essential for sustaining road and public transport systems.

This change balances the financial needs of the government with its commitment to achieving carbon reduction targets.

How to Prepare for the April 2025 Car Tax Changes?

Here’s how you can adapt to the upcoming car tax reforms:

• Review Your Vehicle’s Tax Band: Check where your car falls under the new VED structure.
• Budget for New Rates: Plan for increased annual costs based on your vehicle type and registration date.
• Consider Vehicle Upgrades: Evaluate the cost-benefit of switching to a newer low-emission or electric vehicle.
• Stay Updated: Monitor announcements from the government to stay compliant with any additional changes.

Planning ahead will help mitigate the financial impact of these changes.

Conclusion

The April 2025 car tax reforms signify a major step towards a more unified and sustainable taxation system for UK drivers. While electric and low-emission vehicles now face additional costs, these changes aim to create fairness while supporting infrastructure funding.

Whether you own a petrol, hybrid, or zero-emission vehicle, staying informed is essential to navigate the evolving tax landscape.

FAQs About the 2025 Car Tax Increase

What is happening to Band A vehicles?

Band A, which currently pays £0 VED, will be abolished. Vehicles in this band will now move to the lowest payable band.

What is the standard rate for electric vehicles?

Electric vehicles will pay a standard rate of £195 annually after the first year (£10 for the first year for vehicles registered after April 2025).

Will hybrid vehicles continue to receive discounts?

No, the £10 discount for hybrid and AFVs will be removed under the new system.

How will the expensive car supplement work?

Electric and zero-emission vehicles with a list price over £40,000 will pay the standard rate plus the expensive car supplement for the first five years starting from the second licence.

What happens to electric motorcycles?

Electric motorcycles will move to the annual rate for the smallest engine size.

Are older vehicles affected by this change?

Yes, electric vehicles registered between 1 March 2001 and 31 March 2017 will move to the first band with a payable VED value (£20).

How does this affect light goods vehicles?

Electric vans will pay the standard rate for light goods vehicles under the revised system.