Starting April 1, 2025, the United Kingdom will implement significant modifications to its Vehicle Excise Duty (VED) system, impacting both electric and traditional fuel vehicles. These changes are expected to have a considerable effect on the taxi and private hire industry, influencing operating costs and fleet choices.
Key Vehicle Tax Changes
Electric Vehicles (EVs):
- New Registrations Post-April 2025: EVs registered after this date will incur a first-year VED rate of £10. From the second year onward, the standard rate of £195 will apply (Not including the Premium Vehicle Supplement).
- Existing EVs Registered Between April 2017 and March 2025: These vehicles will be subject to the standard annual rate of £195 starting in April 2025.
Hybrid Vehicles:
- First-Year Rates: Vehicles emitting 1-50g/km of CO₂, including hybrids, will face a first-year VED rate of £110.
- Subsequent Years: A standard rate of £195 will apply from the second year onward.
High-Emission Vehicles:
- First-Year Rates: Vehicles with CO₂ emissions above 255g/km will see their first-year VED rise from £2,745 to £5,490.
Additional Considerations:
- Premium Vehicle Supplement: Vehicles with a list price above £40,000 will incur an additional annual charge of £410 for five years.
- Inflation Adjustments: All VED rates are subject to annual reviews and adjustments based on inflation.
Impact on the Taxi & Private Hire Industry
1. Higher Costs for Taxi & Private Hire Operators
The new tax structure means that previously exempt electric taxis and private hire vehicles will now be subject to standard VED rates. Many airport transfers and private hire firms, including Uber drivers, have transitioned to electric vehicles in recent years to benefit from tax breaks and lower running costs. This new policy could reduce the financial advantage of EV adoption, making fleet decisions more challenging.
2. Increased Costs for Petrol & Diesel Taxis
For operators still using traditional internal combustion engine (ICE) vehicles, the sharp increase in tax on high-emission cars could make maintaining older fleets unsustainable. Many purpose-built taxis, such as the TX4, are diesel-powered and could see significantly higher VED charges.
3. Fleet Electrification & Investment Pressures
As private hire and taxi firms face rising costs for petrol and diesel vehicles, many will feel increased pressure to invest in EVs or hybrid models despite their upfront costs. However, with EV taxation now rising, companies may need to reconsider long-term financial planning for vehicle purchases.
4. Ride-Hailing & Taxi Fares May Increase
To offset the additional operational costs from the new tax rates, ride-hailing services such as Uber and Bolt, as well as traditional taxi firms, may pass on these expenses to customers. This could result in higher fares for passengers in the coming years.
5. Potential Industry Pushback & Policy Adjustments
Taxi and private hire trade groups are likely to lobby for exemptions or lower tax rates for professional drivers who rely on their vehicles for business. The industry could push for incentives that encourage electric vehicle adoption while maintaining financial viability for drivers.
Conclusion
The upcoming changes to the UK’s car tax system will have wide-reaching implications for taxi and private hire drivers, increasing costs for both electric and traditional vehicles. While this may encourage further electrification of fleets, it could also lead to higher fares and financial strain on smaller operators. As the industry adapts, regulatory adjustments and potential government incentives may be necessary to support a smooth transition.
