Volkswagen Financial Services UK recorded a £485.9 million pre-tax loss after setting aside £725m for motor finance redress.
The loss for the year ended December 31, 2025, compares with a £136.1m pre-tax profit in 2024, according to accounts filed at Companies House.
The finance provider, which supports car dealers across Volkswagen Group’s brands, recognised the provision to cover expected costs under the Financial Conduct Authority’s (FCA) motor finance consumer redress scheme.
However, its operating profit before the provision increased 34% to £239.1m, compared with £178.7m in 2024.
Motor finance provisions at both Stellantis Financial Services UK and Close Brothers reached a combined £541.3 million as an Upper Tribunal hearing begins this week to consider the timetable for legal challenges to the FCA’s redress scheme.
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Provision includes compensation and administration costs
VWFS said the £725m provision includes estimated compensation and interest payments, alongside administrative and operational costs associated with implementing the scheme.
Its calculations take account of the expected level of customer participation and cover the two periods addressed by the scheme, spanning April 2007 to November 2024.
The company said uncertainty remained over how the rules apply to its business model as a manufacturer-owned finance provider.
It has initiated legal proceedings seeking clarification from the Upper Tribunal and warned that the eventual financial outflow could differ materially from the current provision.
The provision represents an estimate of expected costs, rather than compensation already paid.
New car finance advances increase
VWFS financed 409,376 new business contracts during 2025, up 0.2% from 408,517 the previous year.
The total value funded increased to £10.28 billion from £9.79bn.
New car finance advances increased 11% to £6.61bn, while used vehicle advances fell 4% to £3.67bn.
The company said improving interest income, after funding costs, helped its underlying performance. Contracts agreed at fixed rates before interest rates increased, and subsequently affected by vehicle delivery delays, were reaching the end of their terms.
A smaller net finance loss from derivatives and hedge accounting also supported the improvement.
However, further falls in used car values, particularly for electric vehicles, reduced disposal profits and increased provisions relating to residual values.
VWFS recorded a £352.9m loss after tax, compared with a £110.3m profit in 2024.
The directors did not propose a dividend.
The company said it retained a strong balance sheet despite the loss, with its liquidity assessment indicating sufficient funding to service debts and finance expected new business volumes, including under a high-stress scenario.