How Does the 2025 Spring Statement Impact EV Salary Sacrifice?
On Wednesday 26th March, the Chancellor of the Exchequer, Rachel Reeves, announced the 2025 Spring Statement - with sweeping changes that affect how electric vehicles are taxed. These adjustments have significant implications for businesses with salary sacrifice schemes, as well as EV drivers across the UK - yet there are several upsides that you may not have thought of.
In this article, we will discuss what these tax changes are, how they will impact both drivers, and businesses, what to consider going into the new tax year, and how to make the most of the opportunities presented by the new statement.
Key Insights:
EV Road Tax Changes: Starting from April 2025, electric vehicle (EV) owners will be required to pay road tax, with new EVs paying a £10 tax in their first year and a standard £195 annually from the second year onward. Early EV adopters (registered before March 2017) will pay just £20 annually.
Benefit-in-Kind (BiK) Tax Rates: The BiK tax rate for EVs will rise to 3% in April 2025 but remains much lower than the BiK rates for petrol or diesel vehicles, which can reach up to 37%. This makes EVs still a financially advantageous option for employees using salary sacrifice schemes.
Expensive Car Supplement: The luxury car supplement for EVs priced over £40,000 will rise slightly to £425 per year starting in April 2025. However, this increase is still a significantly lower tax burden compared to traditional luxury petrol or diesel cars.
Employer National Insurance Contributions (ENICs) Rise: From April 2025, employer NICs will increase from 13.8% to 15%, with a reduced threshold of £5,000. Businesses can mitigate these costs through salary sacrifice schemes, which lower both the employer's and employee's tax burdens.
Is the Spring Statement different from a Spring Budget?
The Spring Statement, also known as the “mini-budget”, is one of two announcements made by HM Treasury to Parliament. This is done after the publication of economic forecasts - with the second such event being the Autumn Statement. Both usually involve speeches by the Chancellor, in the House of Commons.
Whereas a budget is designed to outline future plans, based on new policies adjusting for projections, and past performance of the economy - a statement serves as a “check-in” to address the government’s priorities in the coming six months. Changes to policy can still be made - as we show below - but they do not present a radical step-change from the overall status-quo.
Did you know that in 2020, the Spring Statement was upgraded to a full budget, after the cancellation of the Autumn 2019 Budget announcement? In 2021, the Spring Statement was also replaced by a full budget.
Why Did These Changes Happen?
Some of the changes to VED were announced last year in Chancellor Rachel Reeves' Autumn Budget, however, changes affecting EVs were confirmed in 2022 under the previous Conservative government and will continue under the current government.
These increased car taxes are expected to generate an additional £400 million per year for the Treasury, as noted by Reeves during her statement in October.
The changes outlined in the Spring Statement are designed to encourage drivers to move away from traditional vehicles, in favour of EVs - with preferential taxes ahead of the 2030 petrol and diesel ban. This is in addition to the cost savings associated with lower EV running costs, and schemes like our EV Salary Sacrifice Car Scheme - designed to save 20-50% on the cost of an electric car.
Road Tax (VED) Changes
From 1st April 2025, drivers of electric cars will need to pay road tax in the same way as those of petrol and diesel cars.
This new measure removes Band A under the existing VED system which is currently £0. Vehicles in this band (EVs) will be required to move to the first band where a rate becomes payable.
Here’s how the tax will work:
Electric cars registered after April 2025 will pay the lowest first year rate at £10. This will rise to the standard rate of car tax, which has been confirmed at £195 per year, from the second year of ownership.
Electric cars registered between 1st April 2017 - 31st March 2025 will be required to pay the standard tax rate of £195 per year.
Early adopters - with EVs registered before March 31, 2017 - will pay just £20 annually.
After the first year of ownership, all EVs will move to the standard rate - rising from £190 to £195 in April 2025.
| Year | From April 2025 | From second year of registration |
|---|---|---|
| VED (EV) | £10 | £195 |
This means that EV drivers buying a new electric car could save substantially in their first year road tax - as there is no ‘showroom tax’ for EVs, and EVs will continue to attract the lowest tax rate despite these changes.
For more information on Road Tax and Showroom Tax, see here.
VED Impacts on Car Leases
Drivers who lease their car through schemes like salary sacrifice typically have their tax covered by the leasing company - so it is factored into the drivers’ monthly bill.
Additional Rate (Expensive Car Supplement)
The luxury car supplement - aka ‘expensive car supplement’ - (for vehicles priced over £40,000) is increasing from £410 to £425 annually, payable for five years from the second year of ownership.
This is in addition to the standard VED rate, bringing the total annual cost to £620 for years two through six.
However, even with these changes, luxury EVs still offer substantial tax advantages over comparable petrol and diesel models. For instance, the tax burden for a BMW iX (electric) is approximately £990 in the first year, compared to over £16,000 for a petrol BMW X5.
Benefit-in-Kind Rates for EVs Rising to 3%
Benefit-in-kind (or BiK) is a tax paid by employees who receive benefits in addition to their salary. If you lease a car through a salary sacrifice scheme, you will have to pay a BiK contribution.
Every car has a BiK percentage banding. This is based on CO2 emissions, and the P11D value, or list price of the car. This price includes VAT and extras.
Benefit-in-Kind tax is going to continue heavily favouring electric cars despite its planned increase. Rising to 3% for EVs in April, BiK will affect drivers that lease their cars through salary sacrifice schemes - increasing their lease costs slightly. Despite this, EV BiK will remain flat across all types of electric vehicles - meaning that drivers of more expensive cars will not be paying a higher percentage rate.
| Year | 2024/25 | 2025/26 | 2026/27 | 2027/28 | 2028/29 | 2029/30 |
|---|---|---|---|---|---|---|
| BiK % (EV) | 2% | 3% from April 1st | 4% | 5% | 7% | 9% |
Compared to petrol or diesel cars, which have a maximum BiK rate of 37% depending on the specific vehicle - drivers choosing to go electric following these changes could stand to save significant amounts of money on their leases.
What will drivers pay in EV tax from April?
The new statement will lead to several changes around the cost of owning an electric car. These new taxes include VED (road tax) for electric cars, luxury tax for new electric cars costing over £40,000, and the increase in benefit-in-kind rates from 2% to 3% for those leasing their car through a scheme like EV salary sacrifice.
Let’s compare the cost of a luxury EV tax bill in 2024, and the EV tax changes from April 2025.
These approximate calculations use a BMW iX - one of the more expensive EVs.
| 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | |
|---|---|---|---|---|---|---|
| Benefit-in-Kind Tax Annual (%) | £560.64 (2%) | £840.96 (3%) | £1,121.28 (4%) | £1,401.60 (5%) | £1,962.24 (7%) | £2,522.88 (9%) |
| VED/ Road Tax | £0 | £10 | £195 | £195 | £195 | £195 |
| Expensive Car Supplement | £0 | £425 | £435 | £435 | £435 | £435 |
| Total Tax Bill | £560.64 | £1,275.96 | £1,751.28 | £2,031.60 | £2,592.24 | £3,152.88 |
*The Expensive Car Supplement Applies from the second year of ownership after registration - the table assumes that the car was registered in 2024.
Let’s compare the cost of a cheaper EV tax bill in 2024, and the EV tax changes from April 2025.
These approximate calculations use a Mini Cooper Electric - a car that will not attract the Luxury/Expensive Car Supplement.
| 2024 | 2025 | 2026 | 2027 | 2028 | 2029 | |
|---|---|---|---|---|---|---|
| Benefit-in-Kind Annual (%) | £240.96 (2%) | £361.44 (3%) | £481.92 (4%) | £602.40 (5%) | £843.36 (7%) | £1,083.36 (9%) |
| VED/ Road Tax | £0 | £10 | £195 | £195 | £195 | £195 |
| Expensive Car Supplement | £0 | £0 | £0 | £0 | £0 | £0 |
| Total Tax Bill | £240.96 | £371.44 | £676.92 | £797.40 | £1,038.36 | £1,278.36 |
As you can see, there will be tax increases for electric vehicles under the new statement from April the 1st - however petrol and diesel cars will be hit hardest. The crucial differences between EV and petrol/diesel tax regimes is the fact that EVs will not be paying showroom tax - which is expected to contribute to increases of up to £2,745 for some drivers.
Additionally, for drivers leasing their EVs through salary sacrifice - benefit-in-kind rates are flat for all EVs, meaning that it will be 3% from April regardless of the cost of the electric car.
This is different with petrol/diesel - where the maximum BiK rate is 37%. This means that buying or leasing an EV will still lead to significant tax savings.
Changes to Employer National Insurance Contributions (ENICs)
The most notable change in Rachel Reeves’ Spring Statement that will affect businesses is focused around National Insurance - with Employer National Insurance Contributions (ENICs) rising from 13.8% to 15% in April.
In addition, the threshold at which employers will begin making NICs will be lowered from £9,100 to £5,000 - leading to a larger tax bill for businesses. Currently, employers pay NI at 13.8% on a worker’s earnings above £9,100 a year or £175 a week.
The rising ENICs present an opportunity to businesses looking to reduce their tax burden by providing a salary sacrifice car scheme - since salary sacrifice costs come from gross wages, reducing the eligible employees’ gross salary once the cost of the lease is deducted. This, in turn, reduces taxable income for both employer and employee - at no net cost to the employer.
| NIC Rate | On Earnings Above | NIC Paid on £40,000 Salary | |
|---|---|---|---|
| Pre-Budget | 13.80% | £9,100 p/a | £4,264 |
| Post-Budget | 15% | £5,000 p/a | £5,250 |
| The Difference | 0.012 | -£3,900 p/a | +£986 Tax Paid. |
Is going electric still worth it in 2025?
Despite the tax changes outlined in the 2025 Spring Statement, owning or leasing an electric vehicle (EV) remains a financially advantageous decision for both individuals and businesses.
While there are some increases in taxes, such as the introduction of road tax for EVs and the rise in benefit-in-kind (BiK) rates, the overall tax burden for EVs still pales in comparison to petrol and diesel vehicles.
For employees opting for EV salary sacrifice schemes, the continued 20-50% reduction in the cost of leasing an EV, and the lower running costs offer significant savings. Additionally, with the rising Employer National Insurance Contributions (ENICs), businesses can still leverage EV salary sacrifice schemes to reduce tax liabilities effectively.
As we approach the 2030 petrol and diesel car ban, EVs remain the more economical, environmentally friendly choice. Although tax rates will increase sligmghtly from April 2025, the overall cost of owning an EV is still far lower than the costs associated with traditional cars, making it a worthwhile investment both in the short and long term. So, yes, owning an EV in 2025 continues to be a smart financial and climate decision for both companies, and drivers.
You can calculate your savings by heading to The Electric Car Scheme’s quote tool - choose your lease terms and the car of your dreams and get a personalised quote!
Please note, The Electric Car Scheme does not provide tax, legal or accounting advice. This material has been prepared for informational purposes only, and is not intended to provide, and should not be relied on for, tax, legal or accounting advice. You should consult your own tax, legal and accounting advisors should you require advice.
Last updated: 21.03.25
