New car tax changes could “slow” sales on forecourts and make motoring unaffordable, according to a leading expert. James Hosking, Managing Director of AA Cars, issued the warning just days after new Vehicle Excise Duty (VED) updates came into effect on April 1, 2025.
He stressed the mix of new VED charges and tariffs from the United States would make affordability an “increasing concern” for road users. The new rules mean consumers are likely to face higher upfront fees and higher running costs at the same time in a double blow. Those looking to purchase electric cars could be most affected with bills set to soar from the second year of ownership under the new system.
James said: “From April 1, 2025, electric and low-emission cars registered for the first time will pay a £10 vehicle tax in their first year, then the standard £195 annually.
“Those priced over £40,000 will also incur an extra luxury car tax for five years. Increased Vehicle Excise Duty (VED) for petrol and diesel cars may further impact the market, potentially slowing sales.
“Meanwhile, proposed tariffs on car imports from the U.S. and rising manufacturing costs could add further pressure to new car prices, making affordability an increasing concern for buyers.”
Most of the new VED rates are down to an increase in Retail Price Index (RPI) inflation, with standard rates up from £190 to £195.
However, Labour has introduced updates to first-year ED fees, with many petrol and diesel owners set to pay double under the new tax year.
Meanwhile, electric car owners have also had fees rise with discounts and exemptions coming to an end.
It will push many electric car owners to pay £625 per year to use the roads once standard VED rates and the extra £425 Expensive Car Supplement (ECS) are taken into account.
The new rates have left many concerned over the potential hit to the electric car market in the long term.
Late last year, Plus Accounting previously said: “Extending the “expensive car supplement” to electric vehicles will significantly impact demand.
“From April 2025, EVs with a list price above £40,000 will incur an additional VED of £425 annually for five years, starting from the second year of ownership.
“This is in addition to the standard VED rates. Industry experts argue that the £40,000 threshold does not reflect luxury for EVs due to their generally higher costs than petrol or diesel cars.”