Vehicle Excise Duty (VED): Rates, bands, and business rules

If running your small business has you hitting the open road, you’ll need to sort out your vehicle excise duty before you push the accelerator pedal. Otherwise known as car or road tax, vehicle excise duty is important to understand – especially as a sole trader. VED is an annual statutory levy collected by the Driver and Vehicle Licensing Agency (DVLA) on vehicles driven or kept on UK public roads.

Read on to learn more about VED rates, EV rule changes, and allowable business expense rules to keep the costs of your fleet under control. 

Vehicle excise duty: In summary

• VED rates depend primarily on a few factors, those being: the vehicle's first registration date, its tailpipe CO₂ emissions, the list price when new, and fuel type.

• Electric Vehicles (EVs) are no longer exempt from VED, paying standard annual rates from year two onwards alongside petrol and diesel vehicles. This change came into effect as of April 2025.

• Business owners are able to claim VED as an “allowable business expense”, but only when using the actual cost method for commercial vehicles or business mileage. The standard rate already takes this into account and won’t allow you to make a claim.  

What is vehicle excise duty?

VED is a mandatory, yearly road tax for almost all vehicles used on UK roads. This is unless your vehicle is officially registered under a Statutory Off-Road Notification (SORN) or qualifies for certain disability exemptions.  

Vehicle excise duty pay rate is determined by three main criteria, which are:

• Your vehicle's registration date; pre-2001, 2001-2017 or post-2017.

• Fuel type: petrol, diesel, hybrid, or zero-emission.

• Your vehicle's official CO₂ emissions rating.

Vehicle Excise Duty bands 2026: Rates and thresholds

Vehicle Excise Duty bands are rates that determine the total VED you need to pay. The Vehicle Excise Duty bands for 2026 are detailed below.

Vehicles registered on or after 1 April 2017

• First-year showroom rate: Car just rolled off the showroom floor? New cars pay a CO₂-based first payment ranging from £10 for zero-emission vehicles to £5,690 for high-emission vehicles (>255g/km).

• Standard rate: From year two onwards, you’ll be on the standard, flat annual VED rate of £200, which applies to all petrol, diesel, hybrid and electric cars. 

• Expensive Car Supplement: Expensive cars are subject to an additional £440 annual fee, applied from years two to six for non-zero-emission vehicles. This applies to those vehicles with a new list price over £40,000 (or £50,000 for zero-emission vehicles registered on or after the 1^st of April 2025).

Cars registered between 1 March 2001 and 31 March 2017

There are 13 CO₂-based tax bands ranging from A to M. Zero-emission cars registered between these dates pay the Band A rate of £20 per year. High-emission cars pay up to £790 per year.

Vehicles registered before 1 March 2001

Vehicles registered before the 1^st of March 2021 for VED are based on engine size – not a CO₂-based tax. This Private/Light Goods (PLG) system charges up to £230 per year for engines up to 1,549cc and £375 per year for engines over 1,549cc.

How do I pay car tax?

Business owners and sole traders can pay Vehicle Excise Duty directly to the DVLA. To pay your car tax, all you need to do is:

• Required documentation: Find your V5C logbook (this should be in your name), a V5C/2 new keeper slip (if you’ve just purchased your vehicle), or a V11 renewal reminder notice. 

• Payment options: Choose your method of payment – either a single, annual payment; a bi-annual payment (once every six months), or an automated monthly direct debit through the official DVLA online portal or at a local Post Office branch. 

Claiming Vehicle Excise Duty as a business expense

There are some important things you need to know about the tax accounting rules for sole traders to claim Vehicle Excise Duty as a business expense. Several methods are available, which will influence what you can claim:

• Actual Cost Method. The actual cost method means that your motor expenses use the actual costs rather than the simplified flat-rate mileage allowance. VED paid on commercial vehicles or business cars is an acceptable expense against Income Tax or Corporation Tax. 

• Simplified Mileage Rate: If you can claim the flat 45p/25p per mile statutory mileage rate, then VED is factored into that rate. This means you can’t claim separately as you’re already “receiving” the expense claim.

• VAT Treatment. Remember – VED is a statutory tax charge and is exempt from VAT. That means that no input VAT can be reclaimed on VED payments. 

Vehicle Excise Duty on second-hand cars 

VED applies when buying or selling used commercial vehicles or business cars. Vehicle tax does not transfer automatically between owners – a common area where small business owners get caught out. 

Loss of tax transfer and re-taxing rules

When a business buys a second-hand vehicle, any remaining Vehicle Excise Duty from the seller is cancelled by the DVLA. That means that the buyer must tax the vehicle immediately before driving it on public roads.

Even if the previous owner paid their VED in full, you would still need to pay anew.

Calculating VED rates for older used vehicles

VED for second-hand vehicles works a little bit differently, based on their original registration date.

• Vehicles registered before March 2001 are taxed purely on engine size, under or over 1,549cc.

• Vehicles registered between March 2001 and March 2017 are taxed based on historical CO₂ emission bands. Your vehicle’s emissions will be between Bands A to M.

• Vehicles registered on or after 1 April 2017 are taxed under the standard flat rate system. That means pre-owned electric vehicles are subject to standard annual rates from 2025 onwards.

Simplify business vehicle expense tracking with QuickBooks

QuickBooks goes the extra mile by helping your business simplify your vehicle expense tracking. It can help you automatically log fuel receipts, categorise motor expenses, track business mileage and help ensure your records are accurate and up to date for Income Tax, Corporation Tax, and Self-Assessment filings.

Discover expense tracking with QuickBooks.

Vehicle excise duty FAQs

Do electric cars pay Vehicle Excise Duty in 2026?

Yes, electric vehicles are no longer exempt from VED. Electric cars registered on or after 1 April 2017 pay the standard annual rate of £200 from year two onwards. On the other hand, older electric cars (2001–2017) pay £20 per year.

Can I claim Vehicle Excise Duty as a tax deduction if I use simplified mileage?

No, you can’t claim Vehicle Excise Duty as a tax deduction, assuming you use the flat statutory mileage rate of 45p per mile for the first 10,00 miles. This rate is intended to cover all vehicle running costs – including VED, insurance, fuel and servicing. In some circumstances, you can claim VED directly if you use the actual cost accounting method for your vehicle. 

How do I find out my car’s tax band?

Finding your car’s tax band online is easy – use the GOV.UK vehicle tax checker online. Enter your vehicle's registration number or check the CO₂ details in your V5C logbook.

How is vehicle excise duty calculated?

Vehicle Excise Duty (VED) is calculated differently – either through a first-year rate, the standard rate, or with the expensive car supplement. For the most accurate estimation, use the Vehicle Tax Rates provided by GOV.UK here.

Can I claim vehicle excise duty as a business expense?

Yes, you can claim Vehicle Excise Duty as a business expense in some circumstances. You must use the ‘actual cost method’ to calculate your vehicle's running costs. If you use the flat rate mileage allowance, you won’t be able to.

Do electric cars pay vehicle excise duty?

Yes, electric cars in the UK must pay Vehicle Excise Duty (VED), as the exemption ended on April 1^st, 2025. The amount you’re liable to pay depends on the price of the vehicle and when it was registered.

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