Key Takeaways
- Annual UK tax on vehicles using public roads.
- Rates depend on emissions, registration, and price.
- EVs pay £10 first year, then £195 standard rate.
- Expensive cars pay extra £425 supplement for six years.
What is Vehicle Excise Duty (VED)?
Vehicle Excise Duty (VED), often called road tax, is an annual tax imposed on vehicles that use public roads in the UK, collected by the Driver and Vehicle Licensing Agency (DVLA). It funds road maintenance and environmental programs, with rates varying based on factors like vehicle emissions and registration date.
The tax system has evolved recently to include charges for electric vehicles, reflecting changing environmental policies and economic obligations.
Key Characteristics
VED has distinct features that impact how much you pay depending on your vehicle's profile.
- Emission-based rates: First-year charges for cars registered after 1 April 2025 depend heavily on CO2 emissions, linking tax to environmental impact.
- Standard annual rate: From year two, most vehicles pay a flat fee, regardless of emissions, but with supplements for expensive cars.
- Expensive Car Supplement (ECS): Applies to vehicles over £40,000 list price, encouraging consideration of total vehicle cost.
- Electric vehicle charges: EVs now face a minimum first-year fee and standard rates thereafter, aligning their tax treatment closer to petrol and diesel cars.
- Inflation indexing: Rates increase annually in line with Retail Price Index (RPI), ensuring the tax keeps pace with inflation.
- Payment methods: Includes online, direct debit, and Post Office options, making renewal accessible and flexible.
How It Works
VED calculation is primarily driven by vehicle registration date and CO2 emissions. For new cars registered after 1 April 2025, the first-year rate varies from £10 for zero-emission vehicles to thousands of pounds for high-polluting cars.
After the first year, a standard rate applies, generally £195 annually, with additional charges such as the Expensive Car Supplement for luxury vehicles. This approach balances environmental incentives with revenue needs and reflects an obligation to fund public infrastructure responsibly.
Examples and Use Cases
Various vehicle types illustrate VED's practical application:
- Electric cars: A Tesla Model Y with a list price above £40,000 faces a £10 first-year rate, then £620 annually (standard plus ECS) for years two to six, showing how luxury EVs are now taxed.
- Petrol vehicles: A petrol car emitting 120g/km CO2 registered in 2025 pays about £220 in its first year and £195 yearly thereafter.
- Commercial vehicles: Electric vans pay according to light goods vehicle rates, which differ from passenger cars, reflecting their operational role.
- Investors interested in clean transportation: Companies featured in the best EV stocks guide are affected by evolving regulations like VED changes, influencing market dynamics.
Important Considerations
When budgeting for VED, keep in mind that rates can change annually and depend on your vehicle’s registration date and emissions profile. This means staying informed about policy updates is crucial for accurate financial planning.
Additionally, understanding how VED interacts with broader trends in the labor market and environmental policy can help you anticipate costs and benefits related to owning or investing in vehicles. For those seeking diversified exposure, exploring low-cost index funds might offer a balanced approach to asset allocation.
Final Words
Vehicle Excise Duty now applies more broadly, including to many electric and low-emission vehicles, with rates rising annually with inflation. Review your vehicle’s emissions and list price to estimate your upcoming VED costs accurately and consider this when planning your next vehicle purchase.
Frequently Asked Questions
Vehicle Excise Duty (VED), also known as road tax, is an annual tax on vehicles used on public roads in the UK. It is collected by the DVLA and helps fund road maintenance and environmental projects.
VED rates depend on your vehicle's registration date, CO2 emissions, type, and list price. Newer cars registered after April 2017 have first-year rates based on emissions, while standard annual rates apply from the second year onward.
For electric vehicles registered on or after 1 April 2025, the first-year VED rate is £10. From the second year, the standard rate of £195 applies, plus an additional Expensive Car Supplement if the vehicle costs over £40,000.
The Expensive Car Supplement is an additional £425 annual charge applied to vehicles valued above £40,000 for years 2 to 6. From April 2026, this threshold rises to £50,000 for zero-emission cars like electric vehicles.
No, electric vehicles lost their full exemption after 31 March 2025. While they pay a reduced first-year rate of £10, from the second year they pay the standard rate of £195, plus any applicable Expensive Car Supplement.
For cars registered before 1 April 2017, VED rates are based on engine size or emission bands and can be lower than newer rates. For example, some older electric vehicles pay £20 annually.
VED is usually paid annually, with the first 12 months often included in a new car's purchase price. Payments can be made online, by phone, or at post offices to the DVLA.
Yes, VED rates are adjusted annually in line with the Retail Price Index (RPI) inflation to reflect changes in the cost of living.
