The End of the Road for Free EV Tax: What Limited Companies Need to Know

The era of free Vehicle Excise Duty (VED), or road tax, for electric vehicles (EVs) is ending. As of 1 April 2025, even those eco-friendly EVs will be subject to taxation. This change necessitates a strategic review for limited companies considering or already utilising EVs.  

What's Changing? (Based on DVLA Information)

From 1 April 2025, registered keepers of electric, zero, or low emission cars, vans, and motorcycles will pay vehicle tax like those with petrol and diesel vehicles. Here's a breakdown:  

• New EVs (Registered on or after 1 April 2025):

  • First-year rate: £10.  

  • Standard annual rate: £195.

• Existing EVs (Registered between 1 April 2017 and 31 March 2025):

  • Standard annual rate: £195.  

• Older EVs (Registered between 1 March 2001 and 31 March 2017):

  • These vehicles will move to the first band that has a VED value. This will be £20.  

• Hybrid and Alternatively Fuelled Vehicles (AFVs):

  • The £10 annual discount for hybrids and AFVs will be removed.  

  • Vehicles registered before 1 April 2017: Rate depends on CO2 emissions (refer to current VED rates).

  • Vehicles registered on or after 1 April 2017: Standard annual rate (£195).  

• Electric Vans:

  • Most electric vans will move to the standard annual rate for light goods vehicles (refer to current VED rates).

• Electric Motorcycles:

  • Electric motorcycles and tricycles will move to the annual rate for the smallest engine size (refer to current VED rates).  

• Expensive Car Supplement:

  • New electric and zero emission vehicles registered on or after 1 April 2025 with a list price exceeding £40,000 will attract the standard rate, plus the expensive car supplement (up to £600) for the first 5 years from the start of the second license.

Why Leasing Can Be a Smart Choice

Leasing remains a compelling option for limited companies due to:

• Lower Upfront Costs: Conserves cash flow.  

• Predictable Monthly Payments: Simplifies budgeting.

• Reduced VED Burden: VED is typically paid only during the lease term.

• Flexibility: Allows for frequent upgrades to newer models.  

• Reduced Admin: Leasing companies often handle maintenance.

What Does This Mean for Limited Companies?

• Cost Considerations: Incorporate the new VED and leasing costs into financial planning.  

• Strategic Vehicle Selection: Factor in vehicle price and lease terms.

• Policy Review: Reassess existing company car schemes.

The Silver Lining

• Reduced Benefit-in-Kind (BIK) Rates: EVs maintain lower BIK rates.

• Environmental Credentials: Enhances corporate sustainability.

• Employee Morale: EVs remain an attractive perk.

Key Takeaways

• Free EV road tax is ending in 2025.  

• Leasing offers financial and operational advantages.  

• EVs still provide tax and environmental benefits.  

• It is very important to check current VED rates on the gov.uk website, as those rates can change.

By staying informed and adapting strategies, limited companies can effectively navigate these changes and continue to benefit from EVs.