Vehicle excise duty
Vehicle excise duty (VED), often referred to as road tax or car tax, is an annual tax imposed by the United Kingdom government on the owners of most powered vehicles that are driven or kept on public roads, applicable across England, Scotland, Wales, and Northern Ireland.[1] The tax serves as a fiscal instrument for revenue generation, though its funds are directed to general government expenditure rather than being hypothecated specifically for road maintenance as originally intended.[2] Introduced in 1921 through the Roads Act as the Road Fund Licence, VED initially aimed to finance road improvements damaged during the First World War, with rates based on vehicle horsepower; the term "Vehicle Excise Duty" was formalized in 1936.[2] Over time, the system evolved from horsepower-based assessments to engine capacity in 1947, and later to carbon dioxide emissions banding starting in 2001, reflecting policy shifts toward environmental incentives.[3] Major reforms in 2017 restructured rates for new cars, introducing a first-year rate tied to CO2 emissions and list price, followed by a standard annual rate, while eliminating exemptions for certain low-emission vehicles over time.[4] Controversies surrounding VED include public misconceptions that it directly funds roads—despite hypothecation ending decades ago—and ongoing debates over its fairness, particularly with 2025 changes imposing charges on previously exempt electric vehicles and adjusting rates to widen differentials between zero-emission and internal combustion engine models. These adjustments aim to address revenue shortfalls from declining fuel duties but have drawn criticism for potentially discouraging adoption of cleaner technologies amid fiscal pressures.[2] In fiscal year 2023-24, VED generated approximately £6.5 billion, underscoring its role as a significant contributor to UK public finances.[1]Overview
Definition and Legal Basis
Vehicle excise duty (VED), commonly known as road tax, is an annual excise tax levied on the keepers of most mechanically propelled vehicles used or kept on public roads in the United Kingdom.[1] It applies uniformly across England, Scotland, Wales, and Northern Ireland, requiring vehicle keepers to obtain a licence from the Driver and Vehicle Licensing Agency (DVLA) to legally operate or store eligible vehicles on public highways.[1] Failure to pay constitutes a criminal offence, with enforcement handled by the DVLA through measures such as vehicle clamping, impoundment, or fixed penalty notices.[5] The legal foundation for VED is primarily established in the Vehicle Excise and Registration Act 1994 (VERA 1994), which consolidates prior enactments governing vehicle excise duties and registration requirements.[6] Under section 1 of VERA 1994, a duty of excise is imposed on vehicles for which a licence is taken out, with rates and categories specified in schedules and amended by subsequent finance acts or orders. The act mandates that licences be issued for periods of 12 or 6 months (or shorter in specific cases), linking payment to vehicle attributes such as engine size, emissions, or weight. Secondary legislation, including annual Finance Acts and Treasury orders, adjusts rates and introduces reforms, such as the shift to CO2-based banding in 2001, while preserving the excise duty's core structure.[7]Stated Purpose Versus Actual Revenue Use
The Road Fund Licence, predecessor to modern vehicle excise duty (VED), was established under the Roads Act 1920, with revenues explicitly hypothecated to a dedicated Road Fund for financing road construction and maintenance.[8] This mechanism linked the tax directly to infrastructure improvements, reflecting the government's stated intent to impose a user charge on motorists benefiting from public roads.[9] However, the Finance Act 1937 ended this hypothecation, redirecting VED revenues into the general Consolidated Fund for unrestricted government expenditure, a policy shift initiated by Chancellor Winston Churchill to address fiscal pressures amid declining fuel tax yields.[10] Since then, despite persistent public perception of VED—commonly termed "road tax"—as earmarked for highways, official allocations have treated it as ordinary revenue, with road spending funded separately from broader taxation pools rather than VED specifically.[11] In a partial reversion, the UK government announced in 2018 that from the 2020–21 fiscal year, all VED revenues raised in England would be directed to the newly created National Roads Fund, intended to support strategic road investments, though this remains a budgetary commitment rather than statutory ring-fencing and incorporates additional funding streams like fuel duties.[8] Critics, including fiscal analysts, argue this does not restore true hypothecation, as the fund's disbursements are subject to Treasury discretion and do not match VED inflows precisely, with total motoring taxes (including VED) yielding approximately £40 billion annually—equivalent to about 5% of government revenue—predominantly for general purposes.[12] Actual road maintenance and capital spending, estimated at £12–15 billion yearly for England, continue to draw from overall public finances, underscoring the disconnect between the tax's colloquial "road user" framing and its fungible role in the exchequer.[11]Current Rates and Categories
Passenger Cars
Passenger cars, classified as private vehicles under tax class TC11, are subject to vehicle excise duty (VED) based on their registration date, with rates differentiated by engine capacity for older models or CO2 emissions for newer ones. The tax is payable annually for vehicles used or kept on public roads, with options for 12-month, 6-month, or direct debit payments. Rates are updated periodically, with the standard annual rate for most post-2017 cars set at £195 as of 1 April 2025.[13][14] For cars registered before 1 March 2001, VED is calculated solely on engine size, regardless of fuel type. The annual 12-month rate is £220 for engines up to 1,549 cc and £360 for larger engines.[15]| Engine Size (cc) | 12-Month Rate |
|---|---|
| Not over 1,549 | £220 |
| Over 1,549 | £360 |
| Band | CO2 Emissions (g/km) | Annual Rate (Petrol/Diesel/Alternative Fuel) |
|---|---|---|
| A | Up to 100 | £20 |
| B | 101–110 | £20 |
| C | 111–120 | £35 |
| D | 121–130 | £165 |
| E | 131–140 | £195 |
| F | 141–150 | £215 |
| G | 151–165 | £265 |
| H | 166–175 | £315 |
| I | 176–185 | £345 |
| J | 186–200 | £395 |
| K | 201–225 | £430 |
| L | 226–255 | £735 |
| M | Over 255 | £760 |
Light Goods Vehicles and Vans
Light goods vehicles (LGVs), encompassing vans and other goods-carrying vehicles with a revenue weight of 3,500 kg or less, are subject to vehicle excise duty (VED) under tax class TC39 for commercial use.[20] Unlike passenger cars, VED for LGVs is a flat annual rate not banded by CO2 emissions, though specific transitional reliefs apply based on emission standards and registration dates.[1] From 1 April 2025, zero-emission LGVs, previously exempt, are charged the standard rate equivalent to diesel and petrol models to ensure revenue neutrality across fuel types.[21]| Category | Registration Period | 12-Month Rate (Non-Direct Debit) | Notes |
|---|---|---|---|
| Standard LGVs (including zero-emission) | On or after 1 March 2001 | £345 | Applies to most vans; 6-month option £189.75. Direct debit totals £362.25 annually.[14] |
| Euro 5 LGVs (including zero-emission) | 1 January 2009 to 31 December 2010 | £140 | Reduced rate for compliant vehicles; 6-month option £77. Direct debit totals £147 annually.[14] |