What are the Road Tax changes coming up?

What’s changing with road tax, or Vehicle Excise Duty, in April 2025?

Did you know updates are coming to Vehicle Excise Duty (VED)? Not sure what they are?

If you answered no to either, don’t worry. You’re in the right place.

Road tax—it’s the universal annoyance that comes with car ownership. And just when you get used to it, it changes (usually not in our favour).

Keeping up with the constant shifts in the automotive world can be tricky, but that’s where we come in. We’re here to put the ease in your next car lease, making sure you know what’s coming and how it might affect you.

Since road tax is included in your lease, these changes won’t directly impact you—but they could mean a slight increase in lease prices.

Will road tax increase in 2025?

In one word—yes.

VED rates will rise in line with RPI inflation, and unfortunately, EV drivers won’t be getting the best news.

After years of exemption, electric cars are now being moved into the first payable tax band. Here’s a quick rundown:

Electric cars were previously exempt from road tax due to their zero emissions, making them one of the most cost-effective choices for leasing.

To keep EVs attractive to buyers, the government has kept the first-year tax low.

From April 1, 2025, all newly registered EVs will pay £10 in year one, based on the lowest tax bracket for emissions (1–50g/km).

From year two onwards, EVs will be charged £195 annually—a change set to generate additional revenue for the government.

How do the VED changes affect leasing?

At Carparison, we put the ease in your lease.

With our Contract Hire deals, road tax is already included in your monthly payments. So, there are no surprise bills. However, with the new VED changes, you might see a slight increase in lease prices.

Electric vehicles are joining the tax club

EVs have enjoyed a tax-free run, but that’s changing. From April 1, 2025, they’ll pay £10 in year one, then £195 annually from year two.

And here’s where it stings: most EVs cost over £40k (the UK average is £46k), meaning they’ll also be hit with the expensive car supplement—an extra £410 per year. 

Ouch.

Does the registration date affect VED prices?

What matters for tax is your car’s registration date, not when it arrives. 

So, if your car is registered on March 31st, but delivered in April, you’ll still pay March’s rates.

If you’re leasing an EV under £40k, the dealer might absorb the road tax, keeping costs down. But for pricier cars that will get the extra expensive car supplement charge, expect to see the change reflected in your monthly payments.

You've got a couple of months still to lease an electric car before the tax changes, saving you some pennies and keeping your money where you want it - in your wallet.

Car delays? No worries

If your delivery is delayed, our team will requote your deal to ensure you still get the best price.

Likewise, if your car arrives earlier than expected, we’ll update your quote based on the latest rates—so you’re never caught out.

We can also partner with third parties to arrange a short-term rental for you, so you're set until your lease arrives.

What About Petrol, Diesel, and Hybrid Cars?

Petrol and diesel cars will also see road tax increases—especially those with higher emissions. The more CO₂ your car produces, the more you’ll pay, which will be reflected in your lease.

Hybrids are also affected.

The £10 discount will still apply in the first year, but from year two, they’ll pay the standard £195 annually, plus any additional charges based on emissions—just like petrol and diesel cars.

And, as with EVs, if the car costs over £40k, it gets hit with the expensive car supplement too.

Company car scheme updates

Does your business operate a company car scheme? Good news—there’s now more certainty around tax rates.

After years of uncertainty, the government has confirmed that Benefit in Kind (BIK) tax rates will rise by just 1% per year for three years from 2025.

BIK tax will increase from 2% to 3% in 2025, then by 1% annually until it reaches 5% in April 2028.

This stability gives companies reassurance when taking out a business lease, allowing you to confidently find the right business lease deal for you and your business.

No further changes have been made to the 5p per litre fuel duty cut introduced by Rishi Sunak in 2024.

We’ve got you covered

We know these changes can be a headache, but we’re here to help.

But don’t fret, we’re here to help you navigate these changes and make sure your leasing experience stays smooth.

Just get in touch, and we’ll walk you through the new numbers to make sure everything’s still a perfect fit for you.

FAQs about Road Tax or Vehicle Excise Duty (VED)

What is road tax?

Road tax (Vehicle Excise Duty or VED) is a tax all UK drivers must pay.

• The standard rate is £195 per year, and after the first year, additional charges are applied based on your car's emissions—higher emissions mean higher tax.
• The funds help maintain, repair and improve UK roads.

Why is road tax collected?

The money goes into the central government fund, supporting infrastructure projects like road repairs and improvements.

Why is road tax increased?

Inflation raises the cost of road maintenance.

With more low-emission vehicles, the government collects less tax, so rates increase to compensate.

How is road tax calculated?

VED is all about your ride and its emissions.

The greener your car, the less you pay.

For cars registered after 1st March 2001, your CO2 emissions decide the bill—so cleaner cars keep more cash in your pocket.

Road tax for cars and light goods vehicles registered before 1 March 2001 is determined by the engine size.

However, vehicles manufactured before 1 January 1984 are classified as historic and are exempt from tax.

Can road tax be paid monthly?

In short, yes you can.

You can set up a Direct Debit with the DVLA.

Can road tax be free?

Previously, the lowest emitting cars had £0 Road Tax. However, with the new announcement, even electric vehicles will have to pay road tax.

In short, the cars which previously had nothing to pay in VED will now be facing the dreaded tax, but if you have a vehicle made before 1 January 1984, these are classed as historic and are exempt.

Additionally, you can claim disability exemption when you apply for vehicle tax if your vehicle is used by a disabled person.

When is road tax going up?

The new VED changes take effect on April 1, 2025.

Do electric cars pay road tax

Yes, from April 1, 2025, EVs will be taxed.

• £10 in year one, then £195 annually.
• EVs over £40k will also pay the £410 “expensive vehicle supplement”—which applies to most EVs, as the UK’s average EV price is £46k.

Will road tax increase on diesel cars?

Yes. Diesel cars produce more emissions, so they’re taxed at higher rates than greener alternatives.

Like all vehicles, diesel car road tax rises with inflation.