New vehicle excise duty rates, which take effect this April, along with falling values for electric vehicles are now described as the ‘perfect storm’ for fleets
Companies are reconsidering their used car strategies due to upcoming changes in car tax VED rules.
As of April, new vehicle excise duty (VED) rates will be implemented, coinciding with declining residual values for electric vehicles (EVs), creating a ‘perfect storm’ for fleets.
Andrew Leech, head of Mercia Fleet Management and founder of Fleet Evolution, said: “We are in a very erratic market at the moment, with many businesses having to re-asses their fleet strategies from two viewpoints.
“Firstly, fleet managers are looking at the timing of the replacement of their fleets, especially those on outright purchase with a high percentage of EVs.
“We are seeing such fleets deferring their replacement cycles and staying out of the used markets in the hope that residual values on EVs will improve. As a consequence, some are turning to short term rental to plug any gaps in the fleet, which can be very expensive.
“An option is to flexibly introduce EVs on subscription rather than long term leases – especially for businesses with seasonal or contractual requirements,” said Mr Leech. Beginning in April 2025, EV owners will be required to pay Vehicle Excise Duty (VED) – or car tax – for the first time under new rules introduced by the former Tory Government.
In addition to facing first-year showroom tax on new models and a standard rate thereafter, approximately 70% of battery-powered models will be subject to a premium tax of £410 on ‘luxury’ models for five years. Auto Express has slammed the new Labour Government’s decision, warning it will ‘create further cost barriers for drivers looking to transition to EVs’ and has urged the government to ditch the luxury car tax on electric vehicles, reports Birmingham Live.
In a move that shocked many, the Autumn Budget of 2022 saw former Chancellor Jeremy Hunt declare that from 1 April 2025, electric cars would no longer be exempt from vehicle excise duty in a bid to ‘make our motoring tax system fairer’. This comes amid expectations that EVs will makeup half of all new car sales from next year.
Auto Express Paul Barker said: “Regardless of the price paid for a used EV, the car will be liable if it was originally bought for more than £40,000 (the current level for the VED), and the vast majority are going to be caught up in this extra charge.”
He also highlighted a potential pitfall for second-hand EV buyers, saying: “Some used EV buyers may not even know about the extra £410 a year cost until they go to tax their vehicles.
Private and used vehicle uptake of EVs is not yet in a position to start adding cost barriers; more needs to be done to encourage drivers to move to this still-fledgling technology, not give another reason to hold off from making the shift.”