Policy paper

First-year Vehicle Excise Duty rates for cars from 1 April 2025

Published 30 October 2024

Who is likely to be affected

Owners of cars who will be liable for Vehicle Excise Duty from 1 April 2025.

General description of the measure

Vehicle Excise Duty first-year rates are paid for the first year of a car’s lifecycle, at the point of registration, and vary based on emissions. From 1 April 2025, the Vehicle Excise Duty first-year rates will be changed to widen the difference between zero-emission, hybrid and internal combustion engine cars.

From 1 April 2025, zero-emission cars will pay the lowest first-year rate. Rates for cars with CO2 emissions of 1 to 50 grams per kilometre and 51 to 75 grams per kilometre, including hybrid vehicles, will increase to bring them closer to higher emitting cars. Cars in the bands for CO2 emissions of 76 to 90 grams per kilometre and above will pay double the equivalent rates from 2024 to 2025.

Policy objective

The government is committed to supporting the transition to electric vehicles. This change will increase the incentives towards new zero-emission cars at the point of purchase, and support take-up of new electric vehicles, which is crucial to achieving Net Zero. Revenue from this change will also help support public services and infrastructure across the UK.

Background to the measure

This measure was announced at Autumn Budget 2024.

Vehicle Excise Duty is a tax on vehicle ownership, and rates depend on the vehicle type and first registration date. Vehicle Excise Duty first-year rates were introduced as part of the wider changes to the Vehicle Excise Duty system implemented in 2017, and vary according to emissions. Vehicle Excise Duty first year rates are paid for the first year of a car’s lifecycle, at the point of registration. From the second year after registration onwards, cars will move to the standard rate of Vehicle Excise Duty. From 1 April 2025, new zero-emission cars registered on or after 1 April 2025 will also be liable for the Vehicle Excise Duty first-year rates. Vehicle Excise Duty first-year rates have been routinely uprated by the Retail Prices Index since their introduction in 2017.

Detailed proposal

Operative date

The measure will have effect on and after 1 April 2025 for all cars, including zero-emission cars.

Current law

Section 1 of the Vehicle and Registration Act 1994 provides for the charging of Vehicle Excise Duty.

Section 2 of Vehicle and Registration Act 1994 provides that Vehicle Excise Duty in respect of a vehicle of any description is chargeable by reference to the applicable rate specified in Schedule 1 to Vehicle and Registration Act 1994.

Proposed revisions

Legislation will be introduced in Finance Bill 2024-25 to amend the applicable rates for cars specified in Schedule 1 to Vehicle and Registration Act 1994. Full details of the new rates are given in Annex A to the Overview of Tax Legislation and Rates.

Summary of impacts

Exchequer impact (£ million)

2024 to 2025	2025 to 2026	2026 to 2027	2027 to 2028	2028 to 2029	2029 to 2030
+15	+415	+410	+370	+285	+200

These figures are set out in Table 5.1 of Autumn Budget 2024 and have been certified by the Office for Budget Responsibility. More details can be found in the policy costings document published alongside Autumn Budget 2024.

Economic impact

In their Autumn 2024 Economic and Fiscal Outlook, the Office for Budget Responsibility estimate that the reform the Vehicle Excise Duty rates adds a maximum of 0.1% to CPI during the forecast period.

Impact on individuals, households and families

This measure will impact on motorists considering purchasing a new car from April 2025 onwards, including zero-emission cars. The increase in Vehicle Excise Duty first year rates may have more impact on people with higher incomes, as these individuals are expected to be more likely to purchase a new vehicle. The majority of car sales in the UK are through second-hand car markets, where sales won’t be subjected to Vehicle Excise Duty first-year rate liabilities.

The measure is not expected to impact on family formation, stability or breakdown.

Customer experience is expected to remain broadly the same as this measure does not make any changes to the operation of any tax processes.

Equalities impacts

Individuals liable for Vehicle Excise Duty first-year rates are likely to be represented in each of the groups with a shared protected characteristic. HMRC does not hold data on people who buy new cars. New cars are on average more expensive than second-hand cars and therefore may be more likely to be bought by people with higher incomes who may have an overrepresentation of certain protected groups. However, the equality impacts cannot be conclusively determined.

Impact on business including civil society organisations

This measure will have a negligible impact on businesses and civil society organisations which own or sell cars, by changing their Vehicle Excise Duty liabilities to impact the cost of buying and selling of higher emission cars. One-off costs include familiarisation with the rate change. There are not expected to be any continuing costs.

Customer experience is expected to remain broadly the same as this measure does not make any changes to the operation of any tax processes.

Operational impact (£ million) (HMRC or other)

There will be negligible financial impact on operational costs for the Driver and Vehicle Licensing Agency (DVLA).

Other impacts

These changes to the Vehicle Excise Duty first-year rates will enhance the environmental signal for new car purchases, further incentivising new zero-emission car purchases over internal combustion engine cars.

Other impacts have been considered and none have been identified.

Monitoring and evaluation

This measure will be monitored through the DVLA vehicle licensing data, as well as through regular communication with relevant stakeholders across government and in industry.

Further advice

If you have any questions about this change, contact the Energy and Transport Taxes Team by email: [email protected].