Vehicle excise duty and zero emission vehicles

Vehicle excise duty (VED) is a tax on the ownership of a vehicle. From 1 April 2025, zero emission vehicles (ZEVs – vehicles that emit no carbon dioxide) will start being charged VED. Until then, they remain exempt.

How will VED apply to zero emission vehicles?

New zero emission cars (first registered from 1 April 2025) will pay £10 in the first year, and then begin paying the yearly standard rate from the second year of registration. Zero emission cars first registered between March 2017 and March 2025 will pay the £195 standard rate when they renew their registration in 2025/26. Older cars (registered between March 2001 and March 2017) will pay £20 in 2025/26 because VED for cars first registered between those dates is calculated differently. Zero emission motorcycles and light goods vehicles will start paying VED at the lowest possible rate for those vehicles.

New zero emission cars will also start becoming liable for the expensive car supplement, a five-year VED surcharge on the purchase of vehicles with a list price exceeding £40,000.

When was this policy announced?

This policy decision was made by the Conservative Government at Autumn Statement 2022. Then Chancellor Jeremy Hunt said he wanted to make the VED system fairer, and ensure all motorists paid a fair contribution. The Finance Act 2023, sections 10-11 makes provision for this.

At the time, there was some concern among MPs and industry experts that the proposals would risk making electric vehicles unaffordable and hinder the government’s net zero agenda.

What’s the Labour Government’s policy on VED?

Upon entering government in July 2024, the Labour Party did not signal a change from the Conservatives’ approach to VED policy. At Autumn Budget 2024, the government announced further measures relating to VED. In particular, it announced that the gap between the first-year VED rate for a zero-emission car and any other cars (including hybrid cars with relatively low carbon emissions) would increase, to maintain an incentive to purchase ZEVs. In other words, the first-year rate for cars that emit any carbon emissions would increase by a higher proportion than that of zero-emission cars.

This announcement has been subject of some criticism in the media. The introduction of VED on ZEVs from April 2025 has also become more topical as April approaches. Media commentary in particular has focussed on the expensive car supplement, with several commentators arguing it would negatively impact the electric car market. This is because electric cars tend to be more expensive than conventionally fuelled ones: an estimate by the Society of Motor Manufacturers and Traders has estimated that over 70% of new car models have a list price exceeding £40,000.