Spring Forecast 2025
Introduction
The 2025 Spring Forecast outlined the Government’s fiscal strategy in response to ongoing economic challenges, with a focus on defence spending, as well a planning and welfare reforms.
However, changes will come into effect for drivers from April 2025, most notably increases to Vehicle Excise Duty and a new Expensive Car Supplement for zero-emission cars, while Benefit-in-Kind rates and Government grants remain key considerations for fleet operators.
We have summarised the changes relating to the vehicle leasing industry and how these could impact you.
Vehicle Excise Duty (VED)
Vehicle Excise Duty (VED) rates for 2025/26 are shown in the table. Cars with a list price of £40,000 or more will be subject to the Expensive Car Supplement of £425 from year two for five years, following the first year’s registration.
- From 1 April 2025, zero-emission cars will be liable for the lowest first-year VED rate, at £10 in 2025/26, and the standard rate VED of £195 from year two onwards. Zero-emission cars with a list price from £40,000, first registered from 1 April 2025, will also become liable for the Expensive Car Supplement – £425 on top of the standard rate of VED for five years following the first-year rate.
- First-year rates for cars emitting 1-50g/km of CO2, including hybrid cars, increase to £110 from 1 April 2025.
- First-year rates for cars emitting 51-75g/km of CO2, including hybrid cars, increase to £130 from 1 April 2025.
- First-year rates from 1 April 2025 for all cars emitting 76g/km of CO2 and above double from their levels in 2024/25.
- From 1 April, zero-emission vans be subject to the same VED rate (£345) as petrol and diesel light goods vehicles.
- A £10 discount will no longer apply to hybrid and other alternative fuel vehicles (AFVs) from 1 April 2025.
Company Car Tax
Company car (also known as Benefit-in-Kind (BIK) tax) is based on a car’s P11D (list price) and CO2 emissions, with the BIK percentage rates for all company cars shown in the table.
From 1 April 2025, BIK tax rates for cars with zero emissions, e.g., EVs, will be set at 3%. Thereafter, the rates will rise by 1% per year until 2027/28, 2% in 2028/29, and a further 2% in 2029/30.
For cars with CO2 emissions between 1-69g/km, BIK tax rates will rise by 1% per year until 2029/30.
Meanwhile, for cars with CO2 emissions between 70-74g/km, BIK tax rates will increase by 1% in 2025/26 and a further 1% 2026/27. The rate will then be held in 2027/28 before increasing by 1% per year until 2029/30.
The BIK tax rates for cars with CO2 emissions from 75g/km will increase by 1% from 1 April 2025 and remain unchanged for two years before rising by 1% per year until 2029/30.
The top rate of BIK payable, which was capped at 37%, will increase by 1% per year from 2028/29.
For non-RDE2 (Real Driving Emissions Step 2) diesels, a tax charge of 4% will continue to apply.
Example:
A fully electric car with a P11D value of £48,495 and CO2 emissions of 0g/km. Its BIK band for 2025/2026 is 3%. £48,495 x 3% gives a taxable value of £1,455 and yearly BIK tax of £291 (£24/month) for a 20% taxpayer, or £582 a year (£49/month) at 40%
Capital allowances
A 100% first-year capital allowance applies until 31 March 2026 for Corporation Tax and 5 April 2026 for Income Tax for zero-emission vehicles, although leasing companies are unable to claim the allowance.
Full expensing
Capital allowances based on full expensing apply until 31 March 2027, following the success of the 130% super deduction introduced in 2021.
Full expensing enables businesses to deduct 100% of outright purchase expenditure from their profits before tax on new main rate equipment items, such as electric charging equipment, vans and trucks (provided the Plug-in Grant has not also been claimed), but excluding company cars. The Government will explore extending full expensing to assets bought for leasing or hiring when fiscal conditions allow.
Lease rental restriction
Lease rentals on company cars can be offset against tax, with the threshold set at 50g/km of CO2. New cars with CO2 emissions of 50g/km or less are eligible for 100% of payments to be offset, while only 85% is claimable for those with CO2 emissions of 51g/km or more.
Fuel allowances
The Fuel Benefit Charge (FBC), used to calculate BIK tax for drivers receiving employer-provided fuel for private mileage in a company car, rises to £28,200 from 6 April 2025.
The current freeze on fuel duty continues until April 2026.
Calculating tax due on employer-provided fuel for private use
Example:
A new car with WLTP-derived CO2 emissions of 194g/km is subject to 37% BIK tax in 2025/26.
Assuming it has a Worldwide Harmonised Light Vehicles Test Procedure (WLTP) combined fuel consumption of 38.2mpg. £28,200 x 37% gives a taxable value of £10,434. Multiplying by the driver’s income tax rate derives annual tax of £10,434 x 20% = £2,087, or £10,434 x 40% = £4,174. With the average price of diesel at £1.40/litre (March 2025), £2,087 will buy around 1,445 litres for a 20% taxpayer. For a 40% taxpayer, it is around 2,895 litres.
Multiplying each by this example car’s combined fuel consumption of 38.2mpg gives 12,147 miles for a 20% taxpayer or 24,333 miles for a 40% taxpayer – the minimum private mileage you need to cover to make the ‘free’ fuel benefit worthwhile.
If your private mileage is less than the calculated figure, paying for the fuel yourself will cost less than the tax. If it is greater, you are better off paying the tax. As electricity is not a fuel it has no scale charge, meaning drivers of 100% electric cars are exempt from fuel benefit tax.
Business mileage, private car
HMRC Approved Mileage Allowance Payments (AMAPs) – the tax and national insurance contribution-free amounts claimable by a driver using their own car for business mileage – are shown (below) for 2025/26.
Up to 10,000 miles Over 10,000 miles
45p 25p
Class 1A National Insurance Contributions (NIC)
Class 1A National Insurance Contributions, payable by the employer on the company car benefit and employer-provided private fuel, rise from 13.8% to 15% on 6 April 2025. The threshold from which NIC must be paid is reduced from £9,100 to £5,000. Smaller businesses will benefit from an increase in the Employment Allowance from £5,000 to £10,500 from April 2025.
As electricity is not classed as a fuel, there is no fuel benefit charge for employer-provided electricity, so employees will not be taxed on that provision and there is no Class 1A NIC to pay in 2025/26.
For plug-in hybrid cars, the zero-emission range affects its taxable value and the NIC payable. However, the 2024 Budget announced that, in April 2028, the mileage-related scale is abolished and all cars with CO2 emissions of 1-50g/km will have their taxable value based on a rate of 18%, rising to 19% in 2029/30.
Commercial Vehicles
Double Cab Pickup Trucks (DCPU)
In the 2024 Autumn Budget, the Government announced that double cab pickup trucks (DCPUs), including models often referred to as extended, extra, king and super cab pickups, will be treated as ‘company cars’ for BIK tax and capital allowance purposes from 6 April 2025. Drivers of 100% electric DCPUs with a payload of over one tonne will pay BIK tax at 3%.
Transitional BIK arrangements will apply to anyone who has purchased, ordered or leased a DCPU before 6 April 2025. This means they will benefit from the previous Government support until disposal, lease expiry or 5 April 2029, whichever comes earliest.
Vehicle Excise Duty (VED)
A VED rate of £345 for petrol and diesel vans (registered from 1 March 2001) will apply in 2025/26. This will also apply to zero-emission vans.
Benefit-in-kind (BIK) tax
The Van Benefit Charge (VBC) for those driving a company van for private use is set at £4,020 in 2025/26. The VBC for private fuel use is set at an extra £769. The monthly tax payable is shown below:
Monthly BIK tax (excl. fuel) £67.00/£134.00
Monthly BIK tax (incl. fuel) £79.82/£159.63
Figures shown for 20%/40% taxpayers
Class 1A National Insurance Contributions (NIC)
Class 1A NICs are calculated based on the 2025/26 Van Benefit Charge – £4,020. The amounts due are calculated by multiplying the VBC by 15%, with the rates shown below.
Annual Class 1A NIC (excl. fuel) £603.00
Annual Class 1A NIC (incl. fuel) £718.35
Example:
A plug-in hybrid car, with a P11D price of £49,055 and WLTP CO2 emissions of 19g/km, has a zero-emission range of 62 miles, will have a BIK tax percentage of 9% in 2025/26. £49,055 x 9% gives a taxable value of £4,415. Multiplying by 15% derives annual Class 1A NIC of £662.
Plug-in Van Grant
A grant is available for 35% of the purchase price (up to a maximum of £2,500) for vans weighing up to 2.5 tonnes, which have CO2 emissions of less than 50g/km, and can travel at least 60 miles with zero emissions.
The same grant is available for vans weighing between 2.5-4.5 tonnes, which meet the same criteria, up to a maximum of £5,000.
Workplace and Home Charging
Workplace Charging Scheme (WCS)
The WCS reduces the cost of a new workplace charging station by 75%, capped at £350 per socket. The scheme is administered by the Government Office for Zero Emission Vehicles (OZEV) and applies to any businesses, charity, public authority, or small accommodation business in England, Scotland, Wales and Northern Ireland, until 31 March 2026.
Electric Vehicle Chargepoint Grant (EVCG)
The EV Chargepoint Grant is open to people living in flats (including those with mortgages) and rental accommodation. Those in single-unit properties such as bungalows and detached, semi-detached or terraced housing are no longer eligible for the grant. Visit Gov.uk for grants available to your customers.
London ULEZ and Congestion Charge
The London Ultra Low Emission Zone (ULEZ) operates in all Boroughs 24/7, except Christmas Day. It excludes the M25 motorway.
If your vehicle doesn’t meet ULEZ emissions standards and isn’t exempt, you will need to pay a £12.50 daily charge to drive in the zone. This applies to cars, motorcycles, vans and specialist vehicles up to 3.5 tonnes, and minibuses up to five tonnes.
From 25 December 2025, zero-emission vehicles also become liable for the Congestion Charge of £15.
Lorries, vans or specialist heavy vehicles over 3.5 tonnes, and buses, minibuses and coaches over five tonnes, do not pay the ULEZ charge but are liable for the Low Emission Zone (LEZ) charge if they do not meet the standards. Discover more on the LEZ standards.
Non-UK-registered vehicles must also meet ULEZ emissions standards and be registered with the EPC PLC, or pay the daily charge to drive within the zone.
Clean air zones
The following cities have implemented inner-city clean air zones and charges may be payable if a vehicle does not meet emissions standards:
- Bath
- Birmingham
- Bradford
- Bristol
- Portsmouth
- Sheffield
- Tyneside – Newcastle and Gateshead