Understanding UK Road Tax and How It’s Calculated

• lightbulbGuides
• account_circleCarTango Advice Team
• event_note17 March 2025
• update26 August 2025

If you own or drive a car in the UK, you’re legally required to pay road tax, officially called Vehicle Excise Duty (VED). Despite being a mandatory cost, many drivers don’t fully understand how it’s calculated, what influences the price, or which vehicles are exempt.

The truth is, VED isn’t a one-size-fits-all figure. It depends on several factors, including your car’s CO2 emissions, fuel type, list price, and even the date it was first registered.

This guide will break down:

• What road tax is and why it exists
• How VED is calculated in the UK
• The current tax bands and costs
• Exemptions and discounts
• Tips to reduce your road tax bill legally

By the end, you’ll know exactly what to expect when buying, selling, or taxing a vehicle.

What Is UK Road Tax (VED)?

Vehicle Excise Duty (VED) is a tax paid for using your vehicle on public roads. It’s collected by the DVLA (Driver and Vehicle Licensing Agency) and contributes to general government funds—not directly to road maintenance, as many believe.

If you don’t pay VED:

• You can face fines of up to £1,000.
• Your car could be clamped, impounded, or crushed.

So it’s essential to stay compliant.

How Is UK Road Tax Calculated?

The amount you pay depends on a combination of factors:

1. Vehicle Age and Registration Date

• Cars registered before March 2001: Tax based on engine size (under or over 1549cc).
• Cars registered from March 2001 onwards: Tax based on CO2 emissions and fuel type.
• Cars registered after April 2017: First-year rate based on CO2 emissions, then a standard rate each year.

2. CO2 Emissions

• Measured in grams per kilometre (g/km).
• Lower emissions = lower tax (or zero tax for some electric vehicles).
• Petrol, diesel, and hybrid vehicles are taxed differently.

3. Fuel Type

• Diesel cars may pay more if they don’t meet the latest RDE2 emissions standard.
• Electric cars used to pay £0 VED, but that changes in April 2025, when EVs become liable to the standard rate.

4. Vehicle List Price

• If your car had a list price over £40,000 when new, you pay an extra £390 per year for the first five years after registration.
• Applies even if you bought the car second-hand for much less.

Current VED Rates (2024/25)

For Cars Registered on or After 1 April 2017

• First-Year Rate: Based on CO2 emissions (ranges from £0 for zero emissions to over £2,000 for very high emissions).
• Standard Rate: £180 per year (for petrol and diesel), £170 for hybrids and alternative fuels.

Older Cars (Registered Between March 2001 and April 2017)

• VED based on emissions banding from A (low emissions) to M (high emissions).

Example:

• Band A (up to 100 g/km) = £0
• Band M (over 255 g/km) = £695

Pre-2001 Cars

Based on engine size:

• Up to 1549cc = £200
• Over 1549cc = £325

Exemptions and Discounts

Some vehicles qualify for reduced or zero VED:

• Electric Vehicles (EVs): £0 until April 2025.
• Historic Vehicles: Cars over 40 years old are exempt (must apply for exemption).
• Disabled Drivers: Certain disability benefits qualify for free road tax.
• Vehicles Used by Charities: Some exemptions apply.

How to Pay Road Tax

You can pay:

• Annually, six-monthly, or monthly by Direct Debit.
• Online at gov.uk/vehicle-tax at a Post Office, or by phone.

Failure to tax your car will result in fines, so always set reminders or use the DVLA’s auto-renew option if available.

Tips to Reduce Your Road Tax Bill

1. Choose a Low-Emission Vehicle

• Cars with lower CO2 emissions fall into cheaper tax bands.
• Hybrids and EVs offer significant savings.

2. Consider the List Price Before Buying

• Avoid cars over £40,000 if possible to dodge the £390 luxury car surcharge.

3. Switch to an Electric Vehicle

• No VED until 2025 and significant fuel savings.
• Government grants for charging infrastructure can also reduce costs.

4. Keep Your Car Well-Maintained

• A poorly maintained engine can increase emissions, potentially moving you into a higher tax band (if tested).

5. Use the DVLA Tax Calculator Before Buying

• Check the exact amount for any car before committing.

Upcoming Changes (April 2025 and Beyond)

• EV Tax Changes: From April 2025, electric vehicles will start paying the standard VED rate (£180).
• RDE2 Standards: Diesel cars not meeting these may face higher charges for longer.
• Policy Updates: Future changes could link VED more closely to usage as fuel duty revenue declines.

Conclusion

Understanding UK road tax is essential for budgeting and making smart car-buying decisions. By knowing how it’s calculated, you can avoid unexpected costs and even reduce your bill legally.

Whether you’re considering an upgrade, moving to an EV, or just planning ahead, being informed about VED is one of the smartest steps you can take as a UK driver.