UK Road Fund Licence Changes in 2025: What Drivers Need to Know
The UK government has introduced significant changes to the Road Fund Licence (RFL) more formally known as Vehicle Excise Duty (VED) which took effect from April 2025. These updates aim to reflect the evolving car market and support the transition to greener vehicles. Whether you’re a private motorist or manage a fleet, understanding the 2025 changes is vital for financial planning and compliance.
What's Changing in 2025?
1. Electric Vehicles Will No Longer Be Exempt
Since 2010, electric vehicles (EVs) have benefited from zero-rate VED, incentivising early adoption. However, from 1 April 2025, EVs registered on or after 1 April 2017 will start paying VED like petrol and diesel cars.
First-year rate: £10 (similar to the lowest emission band)
Standard rate (year two onwards): £190 (current rate for internal combustion engine cars)
This change removes a key financial benefit of EV ownership, though EVs will still enjoy lower running costs overall.
2. Changes to Expensive Car Supplement
Cars with a list price over £40,000 attract an additional charge known as the expensive car supplement. From 2025:
EVs will no longer be exempt.
The supplement remains at £390 per year for five years, starting from the second year of registration.
This could impact premium EVs such as the Tesla Model Y, Audi Q8 e-tron, and others.
3. Adjustments to First-Year VED Rates for ICE Vehicles
First-year VED for petrol and diesel vehicles will be restructured to better reflect emissions, aligning more closely with environmental objectives.
High-emission vehicles will see increased rates.
The government will continue using the WLTP (Worldwide Harmonised Light Vehicle Test Procedure) to calculate CO₂ output.
Why the Changes?
The government estimates that electric vehicles will make up over half of all new car sales by 2027. With declining VED revenues from conventional cars, the Treasury is adjusting policies to maintain funding for road infrastructure.
This change also levels the playing field between different vehicle types, especially as EVs become more mainstream and accessible.
Impact on Private and Fleet Drivers
Private Owners:
Budget for VED when leasing or buying a new EV, especially higher-end models.
Evaluate total cost of ownership (TCO) beyond just fuel savings.
Expect slightly higher lease costs as new rates are abosrbed
Fleet Managers:
Review whole-life costs for new fleet acquisitions.
Update payroll or salary sacrifice schemes to account for VED on EVs.
Look out for one off lease company bills recovering the increase
Final Thoughts
While the 2025 Road Fund Licence changes mark a shift in how EVs are taxed, they reflect the government’s drive to create a sustainable, fair taxation model in a rapidly evolving automotive market. For both personal and fleet buyers, staying informed ensures better decision-making and cost management.
Stay Ahead with LetsTalk Leasing
If you're considering switching to an electric vehicle or updating your company fleet, our team can help you understand the real-world costs of leasing, including tax implications. Get in touch today to learn more about your options and how to beat the 2025 changes.
