New car tax rules in VED shake-up will see one type of vehicle 'phased out'

Car tax changes could see a critical vehicle type "phased out" of the UK, it has been warned. After the new Labour Party government's Budget, Rachel Reeves' shake up to car tax and Vehicle Excise Duty (VED) could backfire massively.

In the Budget, company car drivers with plug-in hybrid vehicles saw significant tax increases, with benefit-in-kind rates set to more than triple from five per cent to 18 per cent by 2028-29. But it could cause a phase out of PHEVs from company car fleets.

Paul Hollick, chair of the Association of Fleet Professionals explained that the Budget can be viewed as “something of a tidying-up operation by the Government when it comes to company cars”. The Government's intention is to push all company car drivers towards zero-emission vehicles, with traditional alternatives being "systematically phased out", he stated.

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"The Government is making it pretty clear that it wants all company car drivers behind the wheel of a zero emissions electric car while paying benefit-in-kind at the standard rate," Hollick added. Mr Hollick warned: "Drivers who have recently taken on a PHEV on a four-year cycle will see their tax rise massively in its last year and no doubt many of them will head into work this morning to talk to their employer about the possibility of getting out of that car earlier."

Vehicles with CO2 emissions of 1g to 50g per kilometre will have appropriate percentages of 18% in 2028/29 and 19% 2029/30. For a PHEV capable of up to 69 miles zero-emission driving, that will mean a seven percentage point year-on-year increase in BIK.

The appropriate percentages for all other emission bands will increase by one percentage point per year in 2028/29 and 2029/30. This will be to a maximum appropriate percentage of 38% for 2028/29 and 39% for 2029/30.