From 1 April 2025, the UK’s road tax system underwent its most significant reform in over a decade. Changes to Vehicle Excise Duty (VED), commonly known as road tax or registration tax, bring electric vehicles (EVs) into the tax system, dramatically increase first-year tax for high-emission vehicles, and reshape how importers and dealers operate in the UK market.

Its important to note first-year VED does not impact cars imported from Japan if they are more than 6 months old at the time of registration in the UK. In fact it provides a competitive advantage for used vehicles imported to the UK as they are not subject to the first year registration charge. Used car dealers may even be able to under-cut new car sales significantly in the high emission brackets.

Whether you’re purchasing a vehicle, importing stock, or managing a dealership, these changes impact costs, strategy, and compliance. Here’s everything you need to know.

Key Changes at a Glance

The biggest shift is that electric vehicles are no longer tax-free. All zero-emission vehicles registered from 1 April 2025 must now pay road tax, starting with a £10 first-year charge, followed by the standard annual rate of £195 from year two onward. In addition, any EV with a list price over £40,000 is now liable for the Expensive Car Supplement, adding £425 per year in tax between years two and six of ownership.

Another major change is that first-year VED now levies a much bigger tax burden on high-emitting vehicles. That means dealers must factor in car’s emissions and first-year tax costs when selling cars — especially those with higher emissions, which now face VED charges of up to £5,490.

Dealers are already responding. Many are reducing stock of vehicles emitting more than 151g/km of CO₂, since these models now carry steep registration taxes and may be less attractive to buyers. This shift coincides with a broader market reaction: in April 2025, UK new car registrations dropped 10.4% year-on-year, with Tesla sales falling 62% — a sign of weakening consumer confidence and a front-loaded market ahead of the tax change.

How VED Works in 2025

Vehicle Excise Duty (VED) is a tax on vehicle ownership, set by the government and administered by the DVLA. Since 2017, the system has used a dual-rate structure:

• A first-year rate based on CO₂ emissions
• A standard rate for each following year

From 1 April 2025, this structure was expanded to include electric vehicles and adjusted significantly for high-emission models. The Finance Act 2023 gave legal effect to these changes, and the policy has continued unchanged under the new Labour government.

First-Year VED: Applies to New Vehicles

The first-year VED rate applies to all new vehicles. This means new car sales must now factor in the tax based on the vehicle’s CO₂ emissions. Here are examples of what owners will now pay when registering a vehicle from April 2025:

• A car emitting 76–90g/km CO₂ will face a first-year tax of £270–£350
• A car emitting 151–170g/km will be charged £1,360–£2,190
• A car emitting over 255g/km (such as many SUVs or performance cars) will pay £5,490

Electric vehicles, while no longer exempt, still pay the lowest rate — just £10 for the first year.

* Diesel cars tested to RDE2 standards
** Diesel cars tested to RDE standards

For full reference: DVLA V149 Tax Rates

Standard Annual Rates from Year Two

From the second year onward, vehicles move to a flat annual rate depending on fuel type — unless the vehicle is classified as a luxury model due to its price.

In 2025/26:

• Petrol, diesel, and EVs pay £195 per year
• Alternative fuel vehicles pay £180 per year
• Vehicles with a list price over £40,000 pay an additional £425 per year for five years (years 2–6)

This luxury surcharge — the “Expensive Car Supplement” — now includes electric vehicles, a move that has drawn criticism from across the industry.

Impact on EVs, Vans, and Motorcycles

The zero-emission exemption is over, and the shift from UK road tax changes 2025 affects more than just cars.

• Electric vans now pay the standard light goods vehicle rate of £345 per year, unless registered during specific Euro-compliant windows that allow for a reduced rate of £140
• Electric motorcycles now pay £26 per year, matching the rate for petrol bikes under 150cc
• Any ZEV registered between March 2001 and March 2017 is taxed at just £20 per year, following legacy CO₂ bands

See GOV.UK’s official breakdown: Vehicle tax for electric and low-emission vehicles

Why These Changes Were Introduced

These UK road tax changes 2025 were first announced in the Autumn Statement 2022 by then-Chancellor Jeremy Hunt, who argued it was time for all road users — including EV drivers — to contribute to public finances. The Finance Act 2023 made the changes law.

The government cited fairness and infrastructure cost as key reasons. While electric vehicles produce no tailpipe emissions, they still contribute to road wear, congestion, and traffic-related costs. According to research cited in Parliament, EVs are often heavier than petrol and diesel cars, increasing long-term damage to the road network.

Despite industry concerns about discouraging EV adoption, the current Labour government chose to maintain this course in the Autumn Budget 2024. They did, however, widen the tax gap between zero-emission and low-emission vehicles to keep some incentive in place at the point of purchase.

For detailed legislative context: Commons Library Briefing – CBP-9690

Market Reaction: Sales Down, Prices Under Pressure

Data from the Society of Motor Manufacturers and Traders (SMMT) showed that UK car sales fell sharply in April 2025:

• Overall registrations down 10.4% YoY
• Tesla registrations fell 62%
• Many dealers rushed to complete transactions before the 1 April deadline

Several manufacturers — including Tesla and Vauxhall — have cut EV prices in an attempt to keep models below the £40,000 tax threshold. These price drops are now a strategic move to avoid triggering the luxury surcharge, particularly for family EVs and entry-level fleet models.

What This Means for Dealers and Importers

If you’re in the business of sourcing or selling vehicles, these UK road tax changes 2025 have real financial and operational consequences.

• Review CO₂ ratings before buying at auction or abroad. First-year tax costs must now be calculated into your landed cost.
• Rethink high-emission inventory. Cars over 151g/km are becoming harder to move, and their taxes are steep.
• Educate your customers. Many still believe EVs are tax-free — and are surprised at the added cost.
• Track changes in list pricing. A small discount might be the difference between paying £195 or £620 per year in VED.

Final Thoughts

The 2025 VED overhaul signals a long-term shift in how the UK approaches vehicle taxation. It’s no longer just about emissions — it’s about balancing fairness, revenue, and infrastructure demands.

Whether you’re importing from Japan, selling domestically, or buying your next car, understanding these tax changes is essential to making smart, financially sound decisions.

Check a vehicle’s VED: www.gov.uk/check-vehicle-tax
Full policy overview: Commons Library Briefing CBP-9690
VED tables: V149 Rates from DVLA