VED Tax Increase

The UK government has announced significant changes to the Vehicle Excise Duty (VED) system, which will affect all new car buyers from 1 April 2025. The VED first-year charge, often referred to as the ‘showroom tax,’ is set to increase, particularly for cars with higher emissions. This change is part of the government’s broader environmental strategy to reduce carbon emissions and encourage the use of cleaner, more sustainable vehicles.

In this article, we will explore the details of these increases, how they will impact car buyers, and provide an illustrative table showing the new VED charges based on a vehicle’s CO2 emissions.

Drivers are unaware of the VED tax increase coming in April that will see some motorists stung an additional £2,745, new research has suggested.

Up to three quarters of motorists are unaware of new tax rules arriving from 1 April 2025, according to a poll by WeBuyAnyCar.

These include first-time costs for electric vehicle drivers and enormous financial implications for new car buyers.

Key Changes to First-Year VED Rates:

• Zero-Emission Vehicles: New zero-emission cars will incur a nominal first-year VED rate of £10, a policy set to remain until the 2029-2030 fiscal year.

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• Low to Moderate Emission Vehicles: Cars emitting between 1 to 50 grams of CO₂ per kilometer, which typically include plug-in hybrids, will see an increase in their first-year VED to £110. Vehicles emitting 51 to 75 g/km CO₂ will have their rates adjusted to £130.

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• Higher Emission Vehicles: A substantial change is the doubling of first-year VED rates for cars emitting 76 g/km CO₂ and above. For instance, vehicles emitting over 255 g/km CO₂ will experience an increase from the current £2,745 to £5,490.

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What is VED?

Vehicle Excise Duty (VED) is a road tax that car owners must pay to legally drive their vehicles on public roads in the UK. The VED is split into two components:

– First-Year VED: This is a one-time charge applied to new cars based on their CO2 emissions. The more a car pollutes, the higher the first-year VED.

– Standard Rate VED: After the first year, all cars are subject to a standard VED rate, regardless of their emissions.

The first-year VED is designed to discourage the purchase of high-emission vehicles, with rates higher for cars that produce more carbon dioxide.

Why the VED Tax Increase?

The government’s decision to increase the first-year VED rates is part of its efforts to accelerate the shift towards greener vehicles. With climate change posing an increasing global threat, reducing carbon emissions from road traffic is a critical target for the UK. The rise in VED rates for higher-emission cars is a clear signal that the government wants to push the automotive market towards low-emission and electric vehicles (EVs).

In addition, this policy aligns with the UK’s broader commitment to achieving net-zero emissions by 2050. As part of this strategy, the government is also targeting a 2030 ban on the sale of new petrol and diesel cars. These changes to the VED structure aim to encourage consumers to consider more sustainable transportation options.

How Will the VED Tax Increase Affect Car Buyers?

The rise in first-year VED rates will increase the cost of ownership for buyers of high-emission cars, particularly those that run on petrol and diesel. While the full extent of the price hikes will depend on the specific model and emissions level, the changes are expected to have a substantial impact on the upfront cost for car buyers.

– Higher Costs for High-Emission Vehicles: Consumers opting for cars with higher CO2 emissions will see a noticeable rise in the showroom tax. This could deter some buyers from purchasing less fuel-efficient vehicles and drive demand for greener options.

– Incentives for Low-Emission Cars: Electric vehicles and hybrids, which typically produce minimal or no CO2 emissions, will benefit from lower or unchanged first-year VED rates. This encourages the adoption of cleaner technologies.

– Long-Term Financial Considerations: Buyers will need to account for the increased showroom tax when budgeting for a new car. While higher-emission vehicles will face a steeper first-year tax, low-emission cars will likely see a reduction or a freeze in rates, providing financial incentives for buyers to transition to greener models.

The lowest first-year VED rate for petrols and diesel with emissions of 76-90g/km currently rings in at £135 today.

However, from 1 April, this will double to £270.

Even most small conventional ‘self-charging’ hybrid vehicles have CO2 emissions above this threshold.

Toyota’s Yaris hybrid, even in its least-polluting specification, puts out 91g/km CO2 and therefore will have a double tax rise, increasing from £165 if you buy a new one today to £330 if you were to order one after 1 April 2025.

Economical new cars with ‘mild-hybrid’ (offering a little electric assistance without sending any e-power to the wheels) internal combustion engines emitting between 101-110g/km C02 will suffer the first-year road tax hike, rising to £390 from £195 previously.

A family buying a brand new 1.3-litre mild-hybrid petrol Nissan Qashqai (which emits 144g/km of CO2) would have to pay an extra £540 (up from £270) in the first year if you purchase after 1st April 2025.

How Will the VED Tax Increase Work After the First Year?

After the first year, car owners will transition to the standard annual VED rates, which will also be influenced by CO2 emissions. However, the increase in the First-Year VED serves as the initial barrier, designed to directly influence the purchasing decision by making the upfront cost of high-emission vehicles more expensive.

Electric vehicles and plug-in hybrids, on the other hand, benefit from ongoing exemptions or lower rates, further incentivizing buyers to make eco-friendly choices.

Conclusion

The increase in VED First-Year ‘Showroom Tax’ rates for new cars, effective from 1 April 2025, is a significant step in the UK’s push for more sustainable transportation. While the changes will add a financial burden to buyers of high-emission cars, they will also provide greater incentives for those choosing electric or hybrid vehicles. The move signals the government’s commitment to its climate goals and signals the beginning of an era where eco-friendly cars are set to dominate the automotive landscape.