From rising annual bills to new thresholds for electric vehicles (EVs), there will be more changes to Vehicle Excise Duty (VED) and company car tax which will take effect in April 2026. Here's what is changing and what you need to know.
What is VED actually for?
Vehicle Excise Duty is a tax for using vehicles on public roads. Although it is often called "road tax," the £5 billion collected annually by the DVLA goes into a general pot. This means your tax might fund healthcare or schools just as often as it funds a new motorway.
Standard road tax increases
For the majority of drivers, the most significant change is the rise in standard road tax. From 1st April 2026, the annual rate of VED will increase in line with inflation. For cars first registered after April 2017, the flat standard rate is set to increase from £195 to £200 per year. This increase applies across the board to petrol, diesel, hybrid, and electric vehicles once they enter their standard-rate period, affecting nearly 60 popular models such as Audi, BMW, and Ford. While a £5 hike may seem small, it adds to the rising cost of motoring, making it more important than ever to review your insurance and maintenance plans to keep your total budget in check.
New thresholds for electric vehicles
There is better news for those looking at premium electric cars, as the government is raising the threshold for the "Expensive Car Supplement." Often called the luxury car tax, this currently adds an extra £425 per year for five years to any vehicle with a list price over £40,000. From April 2026, this threshold will jump to £50,000 for zero-emission vehicles. This change is particularly beneficial for families, as many popular electric SUVs fall within that £40,000 to £50,000 bracket. By purchasing an EV under the new limit, owners could save thousands of pounds over the first few years of ownership.
Changes for company car drivers
Company car drivers will also see a slight adjustment to their tax obligations. Starting 6th April 2026, the Benefit-in-Kind (BiK) rate for electric company cars will increase from 3% to 4%. BiK determines the tax an employee pays for the private use of a company car. Although electric cars remain significantly more tax-efficient than a petrol or diesel, this 1% rise will lead to slightly higher monthly payroll deductions. The exact impact on your take-home pay depends on the car’s value and your specific tax bracket. Our experts from Harwoods Leasing are on hand to help if you have any questions or want to find out more about fleet and leasing.
How does the DVLA know if I’ve paid my car tax?
The physical paper tax disc was retired in 2014. Today, enforcement is entirely digital. The police use a large network of Automatic Number Plate Recognition (ANPR) cameras, both roadside and in patrol cars, to cross-reference your plate with the DVLA’s database in real-time. You can check if your car is taxed, and when your tax is due at Gov.uk/check-vehicle-tax.
When do I pay my car tax?
You must tax your vehicle as soon as you take ownership. After that, the DVLA sends a reminder before your current tax expires (always at the end of the month). You can choose to pay for 6 or 12 months at a time.
How do I find the tax band for my car?
To find the tax band of your car you will need:
Year of the vehicle's registration, which you can find on the V5C logbook
Vehicle's fuel type
Vehicle's CO2 emissions
Vehicle tax exemptions and rules
While certain vehicles are exempt from paying vehicle tax, it is a common misconception that you don't need to do anything. You must still "tax" the vehicle by applying for the exemption through the DVLA.
Which vehicles are exempt?
You do not have to pay if you have one of the following types of vehicle:
Disability Status: Vehicles used by a disabled person or dedicated disabled passenger vehicles.
Mobility Aids: Mobility scooters, powered wheelchairs, and invalid carriages (with a maximum speed of 8mph).
Historic Vehicles: Classic cars built more than 40 years before 1 January of the current year.
Specialist Machinery: Mowing machines and steam-powered vehicles.
Off-road Industry: Vehicles used exclusively for agriculture, horticulture, and forestry.
Selling your car: what you need to know
Since the disc-to-digital change in October 2014, vehicle tax is no longer transferable between owners.
When you sell your car: You will automatically receive a refund for any full remaining months of tax from the DVLA once you notify them of the sale.
When you buy a car: You must tax the car immediately before driving it away, you cannot use the previous owner's remaining tax.
Drive forward with confidence
Staying on top of these changes ensures you aren't caught out by unexpected bills or DVLA penalties. Whether you are looking to make the switch to an electric SUV to take advantage of the new £50,000 threshold, or you’re a company car driver adjusting your 2026 budget, a little preparation goes a long way.
Jordan Metson, Senior Marketing Executive said "With the luxury tax threshold for EVs jumping to £50,000, the road to premium electric driving has never been more accessible. Staying ahead of these changes isn't just about compliance, it's about timing your next move to save hundreds".
While the landscape of UK motoring tax is evolving, the benefits of transitioning to zero-emission vehicles remains clear, both for your wallet and the environment.
Need expert advice? Harwoods is here to help
Navigating tax brackets and Benefit-in-Kind rates can be a bit of a headache. If you’re unsure how these April 2026 updates affect your next vehicle choice or your current lease, we’re here to help.
Contact the Harwoods Leasing team today for a tailored breakdown of your options, or browse our latest offers to find a vehicle that fits both your lifestyle and your budget. You can also buy a brand new or used car online with Harwoods. You can also get a fast, free valuation for your car too. Want to visit us in person? Find your nearest Harwoods dealership below.