Budget 2025 UK has brought a complete transformation to the auto finance by introducing vast changes to the rewarding of electric vehicles. Ranging from modification in tax regimes to increase in charging electricity besides other improvements these are providing new parcels and responsibilities to consumers, companies and lenders in the quickly developing EV sector.
Introduction: The EV Revolution Accelerates
With Budget 2025 providing a wholescale reform of electric vehicle incentives, the UK is at a crossroads in its drive to reach net-zero by 2050. The recent budget proposals are completely transforming the automobile finance industry as the government plans the gradual elimination of cars using internal combustion engines by 2030. The transition to EV is already in place in the UK, with more than one million EVs already on the roads and the pace of change picking up, and these developments augur the most significant EV financing alteration since the Personal Contract Purchase (PCP) agreement.
The 1.4 billion investment that the budget has committed to the roll-out of EVs, tax code and infrastructure funding restructure is opening up unprecedented opportunities to the consumer and the business in parallel to destabilizing the old finance construct. These changes are important to understand to anyone who plans to buy an EV or is attached to the automotive finance business.
Key Changes in Budget 2025
Vehicle Excise Duty Reforms
The one that will have the biggest impact on the costs of owning EVs is the new Vehicle Excise Duty (VED) on electric cars, which will start at 1 April 2025. EVs used to be road tax exempt, but that is not the case any longer:
- First-year rate: £10 for new zero-emission cars (lowest rate available)
- Standard rate: £195 annually from the second year onwards
- Expensive Car Supplement: £425 annually for EVs costing over £40,000, totalling £620 per year5
This represents a fundamental shift in the total cost of ownership calculations that finance providers must now incorporate into their lending models.
Enhanced Tax Incentives for Businesses
Despite the introduction of VED, the budget maintains and extends several business incentives:
- 100% First Year Allowance (FYA) extended for another year until March 2026
- Benefit-in-Kind (BiK) rates remain at 2% until April 2028, then gradually increase to 9% by 2029-306
- Company car tax differentials widened to favour EVs over hybrid and ICE vehicles
Substantial Infrastructure Investment
The budget allocates £1.4 billion specifically for EV rollout, with an additional £400 million dedicated to expanding public charging infrastructure4. This includes:
- £200 million for accelerating charging point networks between 2025-26
- £120 million supporting electric van purchases through the Plug-In Vehicle Grant
- Enhanced funding for on-street charging across England
Impact on Auto Finance Models
Traditional Finance Products Evolving
With the rising trends of auto finance that is expected to reach 1.82 trillion in the global market by 2025, there is a digitalization of the auto finance market where it is projected that 70 percent of auto loans will be done and executed through pure digital platforms. This change is being speeded up with the introduction of EV-specific considerations:
Personal Contract Purchase (PCP) Adaptations
- Residual value calculations now factor in EV depreciation patterns
- Extended warranty options for battery performance
- Charging infrastructure access packages bundled with finance deals
Hire Purchase (HP) Modifications
- Lower interest rates for EVs reflecting government incentives
- Flexible payment structures accommodating business tax benefits
- Integration with salary sacrifice schemes for maximum tax efficiency
Regulatory Changes Affecting Finance
The UK Court of Appeal’s ruling on undisclosed commission payments has created additional complexity in the auto finance sector. Finance providers must now:
- Provide complete transparency on commission structures
- Obtain explicit customer consent for all arrangements
- Prepare for potential compensation claims estimated at £30 billion industry-wide
These regulatory changes, combined with EV incentive modifications, are forcing lenders to redesign their entire approach to automotive financing.
Business and Fleet Finance Transformations
Enhanced Business Incentives
The extension of 100% First Year Allowances until March 2026 provides significant opportunities for businesses12. A company purchasing a £50,000 EV can deduct the full amount from taxable profits, substantially reducing corporation tax liability.
Fleet Finance Evolution
- Dedicated EV fleet financing packages with preferential rates
- Charging infrastructure loans bundled with vehicle finance
- Maintenance packages incorporating battery warranties and charging costs
Salary Sacrifice Schemes
Salary sacrifice arrangements for EVs continue to offer substantial savings, with employees potentially saving 20-50% on EV costs through pre-tax payments. For example, an MG4 Trophy costing £431 monthly can be reduced to £290 after tax savings.
Consumer Finance Options and Opportunities
New Financing Models
The rise of subscription models is particularly notable, with experts predicting they could account for 20% of the total asset-financing market by 2025. These models offer:
- All-inclusive monthly payments covering insurance, maintenance, and charging
- Flexibility to upgrade vehicles as technology advances
- Reduced upfront costs making EVs accessible to more consumers
Zero-Deposit Options
Alternative financing models, including zero-deposit car finance, are gaining traction with a 34.4% growth rate in vehicle subscription services7. This trend is particularly relevant for EV adoption, where higher purchase prices have traditionally been a barrier.
Infrastructure Investment and Its Financial Implications
The government’s £400 million investment in charging infrastructure is creating new financing opportunities:
Charging Infrastructure Finance
- Workplace Charging Scheme providing grants for businesses until March 20266
- Electric Vehicle Chargepoint Grant offering up to £350 for flat owners and renters6
- Commercial charging point financing with government backing
Impact on Vehicle Valuations
Enhanced charging infrastructure is positively affecting EV residual values, making finance deals more attractive through:
- Improved resale value predictions
- Reduced range anxiety affecting depreciation
- Enhanced market confidence in EV technology
Challenges and Market Responses
Industry Adaptation
The auto finance sector faces several challenges in adapting to these changes:
Technology Integration
- AI-driven approval systems analysing hundreds of data points beyond traditional credit scores7
- Digital platforms reducing approval times from 3 days to under 30 minutes7
- Enhanced customer experience through seamless digital processes
Market Volatility
- New car finance business volumes dropped 2% in late 2024 due to consumer caution
- However, long-term growth of 6.4% annually is forecast through 2034
- Used EV market expected to grow by £28 billion between 2024-2028
Lender Responses
Finance providers are adapting through:
- Competitive EV-specific finance packages
- Faster approval processes with transparent pricing
- Enhanced digital experiences meeting consumer expectations
Future Outlook for EV Finance
Market Projections
The Society of Motor Manufacturers and Traders (SMMT) emphasises that “sustained investment is essential to drive EV adoption and build a robust, reliable charging network”. The current funding represents a positive step, but industry leaders stress that further support is needed for a fully inclusive electric vehicle transition.
Emerging Trends
Consumer Loan Support
The government is in discussions to subsidise EV purchases by guaranteeing consumer loans, potentially offering low-interest or interest-free financing options.
Wheelchair Accessible Vehicles
Specialised support continues with 35% discounts (up to £2,500) available for converting vehicles to wheelchair-accessible formats.
Comparison Table: EV Finance Options 2025
| Finance Type | Key Benefits | Typical Rates | Best For |
|---|---|---|---|
| PCP | Lower monthly payments, flexibility to return/buy | 3.9-7.9% APR | Personal use, regular upgrades |
| HP | Ownership at end, fixed payments | 4.2-8.5% APR | Long-term ownership |
| Salary Sacrifice | 20-50% tax savings | N/A (pre-tax) | Employees, company car users |
| Subscription | All-inclusive, flexible terms | £300-800/month | Occasional use, tech enthusiasts |
| Business Lease | 100% FYA, low BiK rates | 2.9-6.5% APR | Fleet operators, businesses |
Frequently Asked Questions
Q: How much will I pay in road tax for my EV from April 2025?
A: New EVs registered after 1 April 2025 will pay £10 in the first year, then £195 annually. EVs costing over £40,000 will pay an additional £425 yearly for five years5.
Q: Are there still tax benefits for company EVs?
A: Yes, Benefit-in-Kind rates remain at 2% until April 2028, and businesses can claim 100% First Year Allowances until March 2026.
Q: What charging grants are available?
A: The Electric Vehicle Chargepoint Grant provides up to £350 for flat owners and renters, whilst the Workplace Charging Scheme supports business installations until March 20266.
Q: How do the new commission rules affect EV finance?
A: All finance providers must now disclose commission arrangements transparently and obtain explicit customer consent, potentially leading to more competitive rates.
Q: Are there specific loans for EV purchases?
A: The government is discussing guaranteed consumer loans for EVs, potentially offering low-interest or interest-free options. Many lenders now offer preferential rates for EV purchases.
Q: What’s the best finance option for businesses buying EVs?
A: Business leasing or outright purchase often provides the best value due to 100% First Year Allowances and low BiK rates for company cars.
Conclusion
Budget 2025’s EV incentives represent a watershed moment for automotive finance in the UK. Whilst the introduction of VED for EVs marks the end of completely tax-free motoring, the substantial infrastructure investment and maintained business incentives demonstrate the government’s continued commitment to electrification.
The auto finance sector is responding with innovative products, enhanced digital experiences, and transparent pricing models. As the market matures, consumers and businesses have access to an increasingly diverse range of financing options, from traditional PCP and HP agreements to cutting-edge subscription models and salary sacrifice schemes.
The £1.4 billion investment in EV rollout, combined with evolving finance products and regulatory changes, is creating a more competitive and consumer-friendly market. However, success in this transformed landscape requires careful consideration of the total cost of ownership, including the new tax implications and the benefits of enhanced infrastructure investment.
As we progress through 2025, the convergence of government policy, technological advancement, and innovative financing solutions is making electric vehicles more accessible than ever before, fundamentally reshaping not just how we drive, but how we finance our automotive future.
