For UK motorists, Vehicle Excise Duty (VED)—better known as road tax—is a mandatory cost of vehicle ownership. However, the system is notoriously complex, particularly as the HM Treasury frequently adjusts rates to account for inflation and shifting environmental policies.
As of 1 April 2024, new adjustments to the VED structure have taken effect. Understanding these changes is essential for anyone planning to purchase a new vehicle, as the costs vary significantly depending on the car’s emissions, fuel type, and original purchase price.
The Cost of a New Car: Beyond the Sticker Price
When calculating the total “on-the-road” cost of a new vehicle, the manufacturer’s list price is only the starting point. Buyers must also account for:
– VAT: A 20% charge applied to the vehicle.
– Registration Fees: Costs for number plates and the V5C logbook from the DVLA.
– Delivery Charges: Fees applied by the dealership.
– First-Year VED: A specific tax rate applied during the vehicle’s first year of registration.
First-Year VED: Emissions and Fuel Types
The amount you pay for your first year of road tax is primarily determined by the vehicle’s carbon dioxide (CO2) emissions. However, the rules differ based on the engine technology used. Notably, diesel engines that do not meet the RDE2 (Real Driving Emissions 2) standard are subject to higher rates.
VED Rates for New Cars (Registered from 2017 onwards)
| CO2 Emissions (g/km) | Petrol & RDE2 Diesel | Non-RDE2 Diesel | Alternative Fuel |
|---|---|---|---|
| 0 | £0 | £0 | £0 |
| 1–50 | £10 | £30 | £0 |
| 51–75 | £30 | £135 | £20 |
| 76–90 | £135 | £175 | £120 |
| 91–100 | £175 | £195 | £165 |
| 101–110 | £195 | £220 | £185 |
| 111–130 | £220 | £270 | £210 |
| 131–150 | £270 | £680 | £260 |
| 151–170 | £680 | £1,095 | £670 |
| 171–190 | £1,095 | £1,650 | £1,085 |
| 191–225 | £1,650 | £2,340 | £1,640 |
| 226–255 | £2,340 | £2,745 | £2,330 |
| Over 255 | £2,745 | £2,745 | £2,735 |
The Luxury Tax Supplement: If the initial purchase price of a new car exceeds £40,000, owners must pay an additional £410 annual supplement for five years, starting from the second year of registration.
Subsequent Years: The Standard Rate
After the first year, the VED calculation changes from an emissions-based model to a fixed-rate model. These rates are not retrospective, meaning they do not apply to older vehicles already on the road.
For the current period, the standard annual rate for petrol or diesel vehicles is £190 (an increase of £10 from 2023).
Current Annual Rates (Post-First Year)
| Fuel Type | Annual Payment | Direct Debit (12 Months) |
|---|---|---|
| Petrol or Diesel | £190 | £199.50 |
| Electric | £0 | N/A |
| Alternative Fuel | £180 | £189 |
Note: Alternative fuel vehicles (hybrids) currently receive a £10 discount compared to standard petrol/diesel rates.
Important Policy Shift: The End of Hybrid Incentives
Drivers should be aware of a significant upcoming change in government policy. While electric vehicles currently enjoy a £0 tax rate and hybrids receive a small discount, these incentives are temporary.
From 1 April 2025, the tax advantages for hybrid and electric cars will expire, and these vehicles will be required to pay the full standard rate of VED. This shift marks a move toward standardizing road tax across all vehicle types, regardless of their environmental impact.
Summary: While first-year road tax is determined by CO2 emissions and engine standards, subsequent years follow a fixed rate. However, the upcoming 2025 policy change will remove current tax breaks for electric and hybrid vehicles, making them subject to the same costs as traditional petrol and diesel cars.
