Upcoming changes to car tax regulations will undoubtedly affect UK motorists starting April 2025, with significant increases to both Benefit-in-Kind (BiK) and Vehicle Excise Duty (VED) affecting drivers across the spectrum.
Starting with the changes to BiK rates, company car users will find themselves facing new tax fees as part of the updated regulations. According to LeaseLoco, BiK charges are set to increase by 1%, with electric vehicles (EVs) seeing their rates rise from 2% to 3%. This increase is impacting all fuel types, with petrol and diesel vehicles also facing similar hikes. The results are stark: cars emitting less than 50g/km of CO2 will enter this new bracket, prompting concerns about the financial impact on drivers.
Notably, the adjustment will present even stiffer penalties for higher-emission vehicles, with BiK rates reaching as high as 37%. Vehicle leasing experts at Octopus Electric Vehicles have commented on how, even with the increase, drivers of electric vehicles can still expect to pay substantially less than those with petrol and diesel models, instantly spotting discrepancies between costs.
Company car users are not the only group affected; changes will also reverberate through the double-cab pick-up sector. Advancements mean these vehicles will no longer receive favorable commercial treatment. From April 2025 onwards, if your double-cab pick-up has at least one tonne of payload, it’ll be taxed as a car for BiK purposes, raising questions on how company perks will evolve.
The VED updates are equally impactful, rolling out alongside the BiK adjustments. Following the Retail Price Index (RPI) inflation rates, standard VED fees will see drivers facing payments of £195 annually from April. Particularly, petrol and diesel vehicle owners with older models produced before 2001 will notice the highest increases and face additional financial pressure.
Not to be overlooked, elderly drivers will now have to cope with these changes as well, having previously enjoyed some tax exemptions. With the new rules, only those with recognized disabilities may still escape taxation, marking a significant shift for pensioners.
According to HM Revenue and Customs, beginning April 1, 2025, all registered keepers of electric, zero or low-emission cars, vans and motorcycles will pay vehicle tax equivalent to petrol and diesel counterparts. This adjustment abolishes the current VED system's Band A, which remains £0, demanding the vehicles move to the first applicable band which incurs costs.
The first-year VED rates for the most polluting vehicles, those producing over 255g/km of CO2, will witness costs upward from £2,745 to £5,490 annually, leaving many car owners reeling from the financial shift. Electric vehicle owners will initially pay £10 for their first year but will transition to the standard rate after one year.
Interestingly, hybrids have not escaped the crosshairs either, as the current £10 annual discount will be revoked. The costs continue to rise for older registered vehicles between 1985 and 2001, with emissions above 1549cc seeing increases to £360 per year, which is up £15 from the previous year. Those under 1549cc will have to stomach higher payments from £210 to £220.
While major vehicle manufacturers like Tesla are seeing their electric models flourish, the looming tax increases put pressure on consumers. The Chronicle Live reported on the Tesla Model 3's remarkable popularity, yet owners are preparing for substantial tax hikes as new regulations take effect.
The combination of BiK and VED adjustments signals significant adjustments for UK motorists starting April 2025. With the push toward more eco-friendly vehicles, the Government aims to create fairer taxation across the board, treating electric and combustion-engine vehicles on equal footing. The reality, nonetheless, means all drivers need to brace for adjustments to their budgets amid these new tax measures.
Overall, as the UK transitions to more stringent taxation on vehicles aimed at protecting the environment, it will be interesting to see how much of the impact will resonate with consumers as they budget for the forthcoming changes.