Navigating the End of EV Tax Breaks: Strategic Leasing for Businesses in 2025

Navigating the End of EV Tax Breaks: Strategic Leasing for Businesses in 2025

Historically, electric vehicle (EV) drivers in the UK have benefited from the Government encouraging green motoring with a series of grants and exemptions. These have included grants for purchasing EVs and having charging points installed at home or in the workplace, and also cheaper benefit-in-kind (BIK) tax rates for company car drivers using EVs. Another very popular tax break was on road tax, or vehicle excise duty (VED) to use its proper name.

EV drivers have previously been exempt from paying VED road tax and that has been a huge attraction in switching to electric driving, but in April 2025 that changed, and it has made EV drivers and businesses think strategically about how they fund their motoring.

What is VED road tax?

VED road tax is a charge that all drivers in the UK have to pay and which needs to be factored into your annual motoring costs. However, until April 2025 EV drivers were exempt from this charge and therefore did not have to pay it. Everything changed with a Government announcement in the 2022 budget which meant that from April 2025, for most EV drivers, the annual VED road tax charge is £195 per 12 months, but if you are driving a brand new vehicle in its first year of registration, which most lease vehicles are, this charge will only be £10 for the first 12 months.

In addition, if your EV was registered after April 1st 2025 and has a list price that exceeds £40,000, this qualifies for a ‘luxury car tax’, which adds another £425 supplementary charge onto your tax bill. In summary, the tax rules on EVs from April 1st 2025 are:

• EV registered from April 1st 2025 (first year) - £10 per year

• EV registered from April 1st 2025 (from second year) - £195 (or £620 if valued over £40,000)

• EV registered between April 1st 2017 – March 31st 2025 - £195

• EV registered between March 1st 2001 – March 31st 2017 - £20

Electric/zero-emission vans will see road tax increase to the same rate as that applied to petrol and diesel vans. This is an annual charge of £335.  

Considerations when leasing EVs for a business

A business needs to plan its fleet costs strategically, and while there are many benefits to using EVs in terms of fuel efficiency, fuel costs, service and maintenance costs and fuel emissions, the increase in road tax rates is something businesses need to consider.

• Road tax in your monthly fee – Importantly, however, in most cases road tax is incorporated into the monthly fee paid to the leasing company, and this is a fixed fee applied to the whole term of the lease agreement. So effectively, the business doesn’t have to think about VED road tax or budget separately for it. It is also worth noting that most finance deals for purchasing a vehicle don’t include this option and road tax has to be paid separately by the driver.

• Corporation tax – Under current corporation tax laws in the UK, lease payments for an EV count as a deductible operating expense. This means the taxable income of a business is lower and therefore the overall corporation tax bill of the business is lower. In addition, a business benefits from leasing because a lease vehicle doesn’t carry any depreciation value and isn’t classed as a fixed asset.

• VAT – Under a business leasing agreement, if the EV is used for both business and personal use, the business can claim back 50% of the VAT charged on its monthly leasing costs. And if the business can definitively prove that an EV is for business use only, this rises to 100%.

• BIK tax – Businesses pay national insurance payments based on BIK rates for company cars. These payments are considerably lower for EVs, in fact 2% of the vehicle’s taxable list price, compared to up to 37% for a vehicle with average CO2 emissions.   

Advantages to business lease deals with Pink Car Leasing

Even though businesses may be mourning the end of road tax breaks for EVs in 2025, this will have minimal impact if the business leases its vehicles, because this cost is included in the fixed monthly leasing costs for the duration of the lease. And given the other tax benefits of leasing an EV, as outlined above, there are huge benefits to business leasing, particularly if a fleet of vehicles is used and leased by the business.

At Pink Car Leasing we have a wide range of attractive business leasing deals and electric vehicle leasing deals. Our team can advise you on the many tax advantages of EV driving and can work out a very simple fixed monthly cost for your EV leasing, so contact our team at Pink Car Leasing today.