If you’re running a business, you’ll no doubt be familiar with the recent government budget that has meant you’ll have to be managing your outgoings tighter than ever. As always, there was plenty in the budget that went under the radar or was less discussed and one was definitely the massive changes to road tax.
The government is making significant updates to Vehicle Excise Duty (VED), or road tax, starting in April 2025. These changes aim to encourage the use of cleaner, zero-emission vehicles while making owners of higher-emission vehicles pay more. For van owners, the changes are a mix of good and bad and make for interesting reading if you are thinking about making the change to an electric van.
Electric Vans
- Electric vans currently enjoy a VED exemption, meaning no road tax is paid.
- From April 2025, this exemption will end. Owners of electric vans will pay a flat £10 in the first year, which will remain frozen until 2030.
- This is still significantly cheaper than the tax for internal combustion engine (ICE) vans, making electric vans a cost-effective option.
What This Means for You:
If you’re considering switching to an electric van, the cost advantage remains clear. While you’ll start paying road tax, the rates are minimal compared to petrol or diesel vehicles. Add in savings on fuel and maintenance, and electric vans are a smart long-term choice.
Diesel and Petrol Vans
- For ICE vans, the first-year VED rate will double starting April 2025.
- After the first year, owners will continue to pay a flat annual rate, regardless of the vehicle’s emissions or size.
- This is simpler than the tiered tax system used for cars, where higher emissions result in higher tax rates.
What This Means for You:
If you own a diesel or petrol van, your road tax will increase significantly in the first year when buying a new van after April 2025. While this doesn’t affect vans you already own, it’s something to plan for if you’re thinking about upgrading. This increase is part of the government’s strategy to encourage a shift to cleaner vehicles.
Double Cab Pickups
- Vans with a payload over 1 tonne currently benefit from being taxed as vans, which means lower tax rates.
- From April 2025, double cab pickups in this category will be reclassified as cars for tax purposes.
- This means owners will face significantly higher taxes, as cars are taxed based on their emissions, size, and value.
Car-Derived Vans
- Car-derived vans (small vans based on car models, like the Ford Fiesta Van) will continue to be taxed under van rules if they meet the criteria for commercial use.
- They avoid the stricter emissions-based tax of cars, keeping road tax and BIK charges lower.
What This Means for You:
If you use a double cab pickup for work, this change could result in a much higher tax burden. For example, Benefit-in-Kind (BIK) tax for company pickups will increase dramatically, with some models seeing tax rates triple. Car-derived vans, on the other hand, remain a cost-effective option for those needing smaller commercial vehicles.
Luxury Car Tax: Does It Apply to Vans?
The Luxury Car Tax adds a surcharge to the road tax of cars costing over £40,000.
- Vans and pickups used for commercial purposes are generally exempt from this tax, even if their value exceeds £40,000.
- However, if a vehicle is reclassified as a car (e.g., some double cab pickups), it could become subject to this surcharge.
What This Means for You:
If you’re buying a high-spec pickup that might fall into the car category under new rules, you could face additional costs. Car-derived vans continue to be a cost effective solution to get around the rules, though it is worth noting that the rules can always change and it is always worth ensuring that your choice of vehicle is classified as you think for tax purposes. Electric vans and traditional vans remain unaffected by this tax as long as they are used for commercial purposes.
What Can Van Owners Do?
- Consider Switching to Electric Vans:
- Electric vans now come with attractive incentives like the Plug-in Van Grant (up to £5,000 for larger vans).
- Even with the new £10 road tax, they remain far cheaper to operate over time.
- Plan for Future Tax Increases:
- If you’re sticking with ICE vans, budget for the higher first-year VED rates after April 2025.
- Double cab pickup users should explore alternatives if the tax burden becomes too high.
- Factor in Total Ownership Costs:
- While electric vans may have a higher upfront cost, the combination of lower taxes, fuel savings, and maintenance costs makes them an attractive long-term investment.
As always, there’s a lot to consider with the annual budget and there’s no telling how long these current plans will last before another review as we’ve seen with the continual changes to the electric van output as well as the ban on combustion engines. For now, these are the latest changes that are coming in 2025 but always keep your ear to the ground as it’s subject to change.
