Vehicle Excise Duty – road tax changes 2025 

From April, the rate of Vehicle Excise Duty that you need to pay for motor vehicles is increasing. Drivers of new petrol, diesel, and hybrid vehicles will be impacted. 

If you use a car or van for your small business, read on to make sure you’re prepared for the upcoming increase in road tax. 

• What is Vehicle Excise Duty?
• Vehicle Excise Duty reforms – April 2025
• Road tax for electric vehicles
• How much will VED cost in 2025?
• How to pay VED
• What happens if you don’t tax your vehicle?
• Are there any exemptions for VED?

What is Vehicle Excise Duty? 

Vehicle Excise Duty (VED) is the yearly tax that you need to pay if you own a car, motorbike, van, or any other motor vehicle registered in the UK. It’s more commonly known as road tax or car tax. 

Every year, the tax increases in line with inflation. The new standard rate is £195, which applies to vehicles from the second year they were registered, but you may have to pay more or less for the first year. 

Older vehicles – those registered before 1 April 2017 – have different tax bands to more modern cars, depending on their CO2 emissions.

Read more: 6 commercial vehicle tax changes for 2025

Vehicle Excise Duty reforms – April 2025 

From 1 April 2025, there’ll be a number of changes to the rates of car tax. The main changes you’ll need to be aware of are: 

• owners of petrol, diesel, and hybrid cars emitting more than 76g/km CO2 will see their first-year tax bill doubled. This means that the most polluting vehicles could come with annual bills of up to £5,490 
• vehicles emitting 1-50 g/km of CO2 will have to pay £110 road tax in their first year, compared to the previous rate of £10 for petrol and diesel cars or £0 for hybrids 
• vehicles emitting 51-75g/km of CO2 will have to pay £135 road tax in their first year, compared to the previous rate of £30 for diesel and petrol cars, or £20 for hybrid.

How much will VED cost in 2025? 

How much road tax you need to pay will depend on the type of vehicle you have and when you registered it. Plus if your vehicle was listed for more than £40,000, you’ll need to pay the extra “premium car tax” – adding an extra £410 to your bill. 

Road tax for cars registered after April 2017

Newer cars are taxed at an emissions-based rate for the first year they’re on the road, then a standard annual rate. 

Road tax for cars registered between March 2001 and 1 April 2017

As we mentioned earlier, cars registered between 1 March 2001 and 31 March 2017 are taxed slightly differently to newer ones. They’re sorted into bands for road tax every year – rather than just the first year they were registered – depending on their emissions. 

Here’s a breakdown of the new rates of tax for these vehicles after 1 April 2025, compared to the old ones. 

VED rates for vans, light goods vehicles, and company cars

While owners of electric vans didn’t previously have to pay road tax, after 1 April 2025 you’ll need to pay the same annual rate as for petrol and diesel light goods vehicles (£345). 

From 1 July 2024, double-cab pick-ups began to be taxed at the same rate as company cars, which is £180. 

How to pay VED

To pay road tax, you’ll need to find your reference number – either in your vehicle log book or a recent vehicle tax reminder or ‘last chance’ warning letter from DVLA. If you don’t have any of these, you can apply for a new vehicle log book. 

You can then pay VED on the government website, over the phone, or at the Post Office. You can choose to make payments monthly or annually. 

You don’t need to make any changes in response to the new VED rates. If you pay by Direct Debit, your updated car tax amount will be taken on the next payment date after 1 April. If you pay annually, you’ll be asked to pay your bill at the same time/date as before.

What happens if you don’t tax your vehicle? 

If you keep (but don’t drive) an untaxed car without registering it as ‘off road’, you’ll be issued with a Late Licensing Penalty (LLP) letter and a fine of £80. This can be reduced to £40 if you pay it within 33 days. 

You’ll then be issued an Out of Court Settlement (OCS) letter, and you’ll need to pay a £30 fee plus one-and-a-half times the outstanding vehicle tax rate. If you don’t pay this you could be taken to magistrates court, which comes with a penalty of £1,000 or five times the amount of road tax you owe annually. This penalty increases to £2,500 if you’re caught using or keeping an untaxed vehicle on a public road, even with a Statutory Off Road Notification (SORN) in place. If you drive without car tax, you could be fined up to £1,000. 

Are there any exemptions for road tax? 

If you use one of the vehicles below you won’t have to pay road tax, but you’ll still have to register for it: 

• Vehicles used by a disabled person
• Disabled passenger vehicles
• Mobility scooters, powered wheelchairs and invalid carriages
• Historic vehicles built more than 40 years before 1 January of the current year
• Mowing machines
• Steam vehicles
• Vehicles used just for agriculture, horticulture, and forestry

More useful guides for your small business

• What does business van insurance cover?
• What van should I buy?
• The best small vans for your business
• MOT checklist for you business vehicle