Changing Your Car Now Could Save You Thousands
As we enter the last week in February and with March getting ever closer, the days are getting longer and the Winter weather seems to be subsiding. Whilst we may have some way to go yet before its officially Spring, there is another pressing matter quickly approaching.
At the beginning of April the new car tax rules come into force meaning that choosing to purchase your next vehicle now rather than later might end up saving you a considerable amount of money. Rather than the usual small percentage increases that seem to happen each time, this year sees a complete overhaul of the way our cars are taxed.
Whilst taxation and its rules are usually a boring and often confusing subject, any ways money can be saved these days is surely a bonus. With this in mind, we thought it would be helpful to put together a guide of the car tax rules that are changing from 1st April onwards. That way you can see if you would be better off changing your vehicle sooner rather than later.
Electric Car Tax
The biggest change when the new rules were announced were that EV’s are no longer exempt from having to pay Vehicle Excise Duty. With the number of car owners switching to EV power the amount of money that the government is generating from road tax was always on the decline. It was only a matter of time before EV’s would be included.
Whilst it was expected at some point, the timing took a lot of people by surprise. With the ZEV Mandate rules becoming stricter each year and the targets becoming increasingly difficult for manufacturers to meet, road tax was one of the main appeals to all-electric motoring. With EV’s generally being more expensive to purchase in the first place, no grants to take advantage of like there used to be, and now road tax having to be paid, manufacturer’s job of persuading drivers to make the switch is harder than ever before.
The good news is that EV’s registered from 1st April 2025 onwards will only pay ￡10 for the first year of road tax. This is usually swallowed up in the eventual ‘on the road’ list price of the car anyway but it should mean that brand new EV prices should not be affected by this change. From the second year onward they will pay the same as everyone else, ￡195 a year, unless they are subject to the Expensive Car Supplement (see below).
The bad news is that current EV owners are not exempt from the new charges. So from the beginning of April onwards all EV owners will pay ￡195 a year for their road tax whether it is registered after 1st April 2025 or not. That is, unless your EV was registered before 2017. For those driving around in what could be considered a classic in EV terms, they get the benefit of paying just ￡20 a year for their VED.
Back to some good news though. If you are considering purchasing a new or pre-owned electric vehicle within the next month, you can take advantage of not having to pay any road tax until it renews this time next year. Might seem like a small saving, but at least it saves you ￡195 and provides you with a full year of cheap EV motoring when everyone else is having to pay. But the savings could be even bigger if you are looking at buying a new EV thanks to avoiding having to pay the ECS (See below).
Combustion Car Tax (Including Hybrids)
For those currently driving around in a petrol, diesel or hybrid car the VED changes are thankfully minimal. If your car currently costs ￡190 to tax to drive on the roads, from the start of April it will only be going up ￡5 to ￡195 per year. That is, unless it is subject to the Expensive Car Supplement covered in the next section (see below).
For those looking to purchase a new combustion engine vehicle, there are still additional savings to be had if you purchase the car over the next few weeks rather than after April 1st. Hybrid vehicles with very frugal emissions currently are subject to first year tax rates of just ￡10 for those emitting up to 50g of CO2 per kilometre, and just ￡30 for those emitting between 51-75g per kilometre of CO2. From 1st April 2025 those first year tax rates will become one hundred pounds more expensive, then ￡110 and ￡130 respectively.
So, whilst it may not affect most combustion engine vehicles, other than hybrids due to their low emissions, merely changing your car before then end of March could save you an additional ￡100 before you’ve even driven it off the forecourt. For performance car fans and those that prefer a bit more horsepower from their vehicles however, there are potentially even bigger savings to be had.
Vehicles that emit more than 75g of CO2 per kilometre, which is basically the majority of cars that aren’t a hybrid and quite a few that are, could see even bigger savings on brand new cars if bought before the beginning of April. For most combustion engine cars the VED rate after 1st April 2025 will double, meaning for some it is quite a considerable increase. Yet due to the way the ratings are categorised it isn’t as straight forward as you might imagine when it comes to how much road tax you would have to pay based upon emissions.
As a guide, a Volkswagen Golf GTE hybrid with its frugal engine and 81 miles of full-EV capability emits just 8g of CO2 per kilometre, yet a Nissan Qashqai e-Power hybrid emits 117g CO2 per kilometre. A Skoda Octavia with a 2.0-litre diesel engine emits 114g of CO2 per kilometre, yet a Caterham Seven 170 with its extremely light weight and just 660cc engine emits just 109g of CO2 per kilometre.
Even with model types the difference can be quite considerable depending on the emissions classification. For example, a Range Rover SE with the P460e petrol plug-in hybrid engine emits just 16g of CO2 per kilometre, the D300 Diesel engine version emits 194g of CO2 per kilometre, whereas the P615 Petrol engine found in the range topping ‘SV’ emits 264g of CO2 per kilometre.
So whilst the categorisation based on emissions might be quite confusing to begin with, the savings you could get are quite considerable. Luckily Auto Trader have produced this easy to read table to let you see just how much you would be expected to pay if you were to purchase a car before the end of March, and then again after 1st April 2025.
Expensive Car Supplement (ECS)
Introduced in April 2017 by the government, the Expensive Car Supplement or ECS is an additional fee levied on vehicles that cost more than ￡40,000 when they were new. It is an additional cost that is paid on a car’s road tax from the second year onwards and is payable for 5 years. At the current tax rate this sees an addition of ￡410 to the annual Vehicle Excise Duty to be paid each year from the second year.
Buying a pre-owned car that is within this threshold and age limitation also means that you are liable for the additional tax charge each year. Once the vehicle has paid its first-year tax charge and 5 years of the additional ECS it then reverts to the standard tax rate of ￡195 per year from 1st April 2025 onwards.
When the ECS was introduced the belief was that the additional cost was affordable by the purchaser of said vehicle as they were buying a premium car in the first place. However most things have seen considerable price rises over the past few years and cars have seen the same trend. A lot has changed since 2017 and ￡40,000 is not an expensive car these days.
Then there are electric vehicles. In the same way that EV’s avoided having to pay road tax they also were not subject to the ECS too. Now all of that has changed. Not only are EV’s set to be subject to the same VED that every other road user is, they also will see the ECS introduced too. With EV’s historically being more expensive to purchase than combustion engine cars and hybrids, that doesn’t leave many models that escape having to pay something was historically got ‘expensive’ or luxury vehicles.
In fact it is even worse for the so called ECS. According to popular automotive marketplace Auto Trader, the median list price of a new car in 2024 was just under ￡42,000. So with the government not changing the threshold, now the average car is considered an expensive car.
Purchasing a new or pre owned vehicle that has an original list price when new of over ￡40,000 means that you are subject to the ECS until the car has paid 5 years of additional fees on top of the first year tax rate, but for those looking at purchasing an EV there may be some relief.
For starters the ECS charge is not going to be added to those cars registered before 1st April 2025, so if you purchase a pre-owned car registered before that date you will pay the ￡195 standard road tax rate. What it does mean however is that if you are looking to purchase a brand new EV you have little over a month to make sure you take delivery or you will be subject to the extra costs.
Company Car Tax
Company Car Tax, or the Benefit in Kind (BIK) rate, continues to favour those looking to use electric vehicles as part of their business use. It is this favourability that continues to fuel a lot of the EV market demand whist the buying public remain hesitant to make the switch for now. Offering better rates to business users has meant that company car schemes and business use vehicles continue to be an attractive prospect.
Whist these preferential rates are set to continue, they are set to increase over the coming years. The BIK rate for fully electric vehicles will increase one percent per year from 2025 to 2028. This means that the current rate of 2% will increase to 3% after 1st April 2025, rising to 5% by 2027.
Some relief in the way that combustion engine cars (those emitting over 75g of CO2 per kilometre) are taxed means that although they are set to see a 1% increase in the BIK rate from 1st April 2025, they will not increase any further over the same period, remaining 1% higher than they are now until at least 2028.
With combustion engine vehicles tax amounts rated by emissions also, this means that the lowest rate 75-79g of CO2 per kilometre will rise 1% to 21% for 2025 and remain there, whilst the maximum BIK rate for high-emission vehicles will remain at 37% over this time period.
Vehicle Classification
Whilst this means that company car users are not seeing the increases that some private drivers will be seeing over the next few years, it hasn’t all been good news for certain vehicle users. For those requiring a pick-up truck for work, double-cab pick-ups have been reclassified as a normal passenger car and therefore not a commercial vehicle anymore.
What this meant previously was that under the previous Benefit in Kind rules, a double-cab pick-up truck was classed as a commercial vehicle and therefore was subject to the maximum taxation of ￡3,960 regardless of list price or CO2 emissions.
Now following the reclassification, a combustion engine double-cab pick-up truck would most likely fall into the top bracket BIK rate, meaning the yearly tax would from 1st April 2025 be over ￡7,000 for those in the 40% tax bracket, rather than the aforementioned maximum of just under ￡4,000.
Whilst current business vehicle users that are driving a pick-up truck may be heavily affected by this new taxation rate and therefore subject to higher annual costs, those looking to purchase a pick-up truck for personal use might benefit. With a likely increase in the number of people looking to get out of their double-cab pick ups from April, there could be a plentiful supply on the market and more choice than ever before.
Is Now The Perfect Time?
Nearly all of the above changes to the way vehicles and drivers are taxed, whether private or business use, result in the same conclusion. If you are considering purchasing your next vehicle over the coming months, it might be worth acting sooner rather than later. Depending on what you are looking to purchase, not only could you potentially save thousands of pounds by doing so sooner, but could reduce the cost of motoring for the next 12 months at the same time.
With so much changing recently with the introduction of the ZEV Mandate and the increase in encouragement to tempt prospective buyers into EV’s, that is only likely to increase over the coming years, this could be one of the smartest and cost-effective decisions you make. Even if it might only last for the next 12 months or so.
What Next?
Whether you have found the car you wish to buy or not, speak to your dedicated Account Manager today by calling us on 0800 012 6666 or simply complete our online form. If you have found the right car they will be able to discuss your options and provide you with a custom finance package just for you and your circumstances.
If you are yet to find the right car, they will be able to discuss your options or budget with you to ensure the make and model you are looking at are right for you and your price range. We can also use our knowledge of the car market and our connections to help source you just the car you are looking for with the right specification for what you need.
Why Choose Oracle?
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