Opinion
What do VED tax increases mean for business fleets?
Lash Saranna, co-founder and CEO of EV salary sacrifice and business subscription firm EZOO, discusses recent updates to UK road taxes and explains the potential repercussions for business fleets.
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n March, Chancellor Rachel Reeves delivered her Spring Statement to Parliament. Of the announcements made, several have the potential to directly impact fleet managers, including updates to Vehicle Excise Duty (VED) – better known as road tax. Being aware of the changes, as well as their potential business implications, is critical to managing costs and making informed fleet decisions.
What changes have been made? From 1 April 2025, updated VED rates are applicable to all new cars registered in the UK. During the first year of ownership, vehicles emitting more than 91g/km CO2 will now be taxed £390. Those emitting more than 255g/km will be taxed a staggering £5,490. In comparison, a plug-in battery electric vehicle (BEV) comes with a nominal first year road tax bill of just £10. After the first year, all vehicles – petrol, diesel, hybrid and EV – will move to an updated annual rate of £195. This payment is a mandatory requirement unless your car or van is declared as SORN (statutory off-road notification).
For fleet managers, this change could result in significant implications. Indeed, the difference between specifying a BEV and a diesel vehicle emitting more than 255g/km (during a typical three-year lease term) – in road tax alone – could be more than £5,400. Careful planning and consideration is therefore essential when it comes to ensuring new vehicles meet operational needs, while preventing unforeseen costs.
to Statista) in the UK are purchased through finance agreements. Over a three-year term, the difference in monthly costs between a petrol/diesel and plug-in vehicle is minimal.
The role of salary sacrifice in managing cost risks
When it comes to getting behind the wheel of a new EV, salary sacrifice remains the most cost-effective solution. Indeed, compared to privately leasing the same vehicle, EZOO’s salary sacrifice schemes offer savings of between 30-60%, depending on salary, marginal tax rate and the BIK rate of the car. For organisations looking to offer a cost- effective company car programme, partnering with EZOO has a number of advantages. Employees can choose from a range of vehicles and make fixed monthly payments from their pre-tax income to make savings on their outgoings. For businesses, electric car lease payments can be counted as a deductible operating expense. Better still, the company does not have to manage depreciation, capital allowances or fixed assets as the vehicle is simply returned at the end of the leasing term.
The tipping point for electrification Many analysts are suggesting that VED increases could be another major nail in the coffin for the sale of new petrol and diesel vehicles. While the uptake of BEVs was already happening at pace, tax hikes make new ICE (internal combustion engine) cars and vans an unappealing choice.
Above: The sums around choosing an EV have changed following tax regime updates.
Interestingly, while hybrid vehicles won’t begin to be phased-out until 2035, classifying 91g/ km CO2 as a high emitting vehicle suggests that the government is serious in changing consumer opinions and accelerating its efforts to drive the switch to an all-electric car parc.
Are we ready for the switch to EV? Data suggests that BEVs are now by far the most
popular choice for new car registrations (with 21% of new sales now plug-in). But is the UK ready for the mass transition to electrification? What about concerns around range anxiety, the public charging network and electric purchase premiums? Well, while each of these issues may have been a cause for concern previously, the EV market has developed at breakneck speed. Indeed, the average range of a modern EV is now upwards of 300 miles, with some ‘long range’ models capable of reaching more than 450 miles in a single charge. What’s more, when it comes to the public charging network, the UK now boasts 76,840 devices across 38,737 locations. Finally, while outright purchase costs still remain comparatively high, most vehicles (90%, according
Tax implications and business fleets It’s fair to suggest that VED increases will significantly impact vehicle choices for both fleet managers and consumers alike. Being aware of the changes and making long-term decisions that will mitigate liabilities is key to preventing unnecessarily high costs. For more information about announcements made within the Spring Statement, or to find out about EZOO’s unique approach to salary sacrifice and EV business subscriptions, visit
www.ezoo.uk.
Above: Lash Saranna, co-founder and CEO, EZOO.
www.businesscar.co.uk | May/June 2025 | 13
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