Incoming car tax changes set to launch in just three weeks could cause havoc for businesses with large vehicle fleets, according to experts.
From April 1, electric cars will have to start paying Vehicle Excise Duty (VED) after former Conservative Chancellor Jeremy Hunt called for all drivers to pay a fair share of road tax.
Other car tax changes will be introduced once the new financial year launches, including first year rate hikes and an increase in price for all tax rates in line with inflation.
While many of the new rules were confirmed by Labour Chancellor Rachel Reeves in the Autumn Budget last October, experts are concerned about the impact the new changes will have.
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Chancellor Rachel Reeves unveiled new car tax changes in the Autumn Statement last October
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Mercia Fleet Management has warned that some companies would consider new replacement cycles because of new tax changes, especially for companies with a large proportion of electric vehicles.
Andrew Leech, head of Mercia Fleet Management and founder of Fleet Evolution, said it was a difficult time for the changes to be introduced since the car market is “very erratic”.
He told Fleet News: “Fleet managers are looking at the timing of the replacement of their fleets, especially those on outright purchase with a high percentage of EVs.
“We are seeing such fleets deferring their replacement cycles and staying out of the used markets in the hope that residual values on EVs will improve.
“As a consequence, some are turning to short-term rental to plug any gaps in the fleet, which can be very expensive.”
From April 1, 2025, first year rates for new electric vehicles will rise from £0 to £10, while most plug-in hybrids will have to pay £110.
Second year rates for electric vehicles are expected to rise from £0 to £195, while the most expensive EVs on the market will face an additional cost.
The Expensive Car Supplement is a levy attributed to vehicles with a market price of more than £40,000, with electric cars set to fall into this category for the first time in April.
The price was originally £410, but will rise to £425 from April and is paid every year for five years starting from the first standard VED payment.
The Chancellor hinted that changes to the so-called “luxury tax” could be introduced soon, although she would only commit to a change at a future fiscal event.
The Budget acknowledged the “disproportionate impact” that the ECS has on the uptake of zero emission vehicles, but delayed making a formal change.
Many across the motoring sector are hoping the Chancellor will introduce new rules for the Expensive Car Supplement in the next Spring Statement on March 26.
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Electric cars will have to start paying Vehicle Excise Duty from April 1, 2025
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Further car tax changes will be introduced in April, including the Government uprating HGV VED rates and the HGV Levy. Both will rise in line with RPI inflation.
The Van Benefit Charge and Car and Van Fuel Benefit Charges will also be hiked from April 1 in line with the Consumer Price Index.
