Motor Vehicle Tax

Motor vehicle taxation in the UK comprises several taxes and duties levied on the purchase, ownership, and use of vehicles. The main taxes are Vehicle Excise Duty (VED, commonly known as car tax), the First-Year Registration Fee, and the Company Car Tax regime for employer-provided vehicles. Fuel duty and VAT on fuel and vehicle purchases are also significant costs for motorists.

Vehicle Excise Duty (VED)

VED is an annual tax payable on most motor vehicles used or kept on UK public roads. The rate depends on the vehicle's fuel type, CO2 emissions, and the date of first registration. Vehicles registered after 1 April 2017 fall under the current VED system, which links first-year rates to CO2 emissions and applies a standard flat rate thereafter. Vehicles registered before that date remain on their original tax band system.

First-Year Rates (Based on CO2)

The first-year VED rate is based on the vehicle's CO2 emissions in grams per kilometre, ranging from £0 for zero-emission vehicles to over £2,500 for the highest emitters. Electric vehicles pay no first-year VED. Petrol and diesel cars with emissions of 1–50g/km pay £10 per year, while vehicles emitting over 255g/km pay the maximum rate. These rates apply for the first 12 months after registration, after which the vehicle moves to the standard rate.

Standard Rate

The standard rate of VED is currently £195 per year (2025–26 rate) for most cars registered after 1 April 2017. This flat rate applies from the second year onwards, regardless of CO2 emissions. Alternative fuel vehicles (hybrids, hydrogen, biomethane) attract a £10 discount. Zero-emission vehicles are exempt from VED entirely, though this exemption is being reviewed and may be phased out for new registrations from 2025.

Expensive Car Supplement

An expensive car supplement (sometimes called the "premium car tax") applies to cars with a list price exceeding £40,000. For five years (from years two to six of registration), the standard VED rate includes an extra supplement of £410 per year. This applies regardless of fuel type, including electric vehicles. The £40,000 threshold is based on the vehicle's list price (including options and delivery fees) and is not adjusted for inflation.

Electric Vehicle Incentives

Zero-emission vehicles currently benefit from several tax advantages: no VED (being phased out for new registrations from 2025), 2% benefit-in-kind rate for company car tax (2025–26), exemption from the expensive car supplement for electric-only vehicles (until 2025), and no fuel duty on electricity used for charging (though this is under review). The government's Road to Zero strategy aims to phase out new petrol and diesel car sales by 2035.

Van Tax

Vans (light goods vehicles) are subject to VED, but at different rates from cars. Most vans pay a flat annual rate of approximately £335 (depending on the registration date and whether the van meets Euro emissions standards). Vans used for business purposes may be exempt from certain vehicle taxes if used exclusively for commercial activities. Company van tax is based on a fixed benefit-in-kind value of £3,960 (2025–26), with a further charge if private fuel is provided.