Vehicle excise duty (VED) on a car first registered from 1 April 2017 is a CO2 based first year charge followed by a flat standard rate, which is £200 a year for 2026 to 2027. The expensive car supplement adds £440 a year, taking the bill to £640, for five years from the second licence where the car’s list price was over £40,000, or over £50,000 for a zero emission car. Electric cars and vans have paid VED since 1 April 2025.

How is VED charged on a car registered since April 2017?

VED is charged under the Vehicle Excise and Registration Act 1994 (VERA), with the car rates in Schedule 1. There are two stages.

The first licence covers 12 months from registration and is based on the car’s CO2 emissions. For 2026 to 2027 it ranges from £10 for a zero emission car, through £455 for 111 to 130g/km, to £5,690 for over 255g/km. Diesel cars that do not meet the Real Driving Emissions 2 (RDE2) standard pay more, for example £560 rather than £455 at 111 to 130g/km.

From the second licence every car pays the standard rate, whatever its emissions and fuel type:

Payment method (2026 to 2027) Standard rate With expensive car supplement
Single 12 month payment £200 £640
12 monthly Direct Debits (total) £210 £672
Single 6 month payment £110 £352
6 months by Direct Debit £105 £336

Paragraph 1GD of Schedule 1 sets the £200 annual rate, and paragraph 1GE substitutes the £640 rate where the supplement applies.

When does the expensive car supplement apply?

Paragraph 1GE of Schedule 1 to VERA applies the higher rate to a licence if all of these are true:

  • the price of the car exceeds the applicable amount, which paragraph 1GE(1A) sets at £50,000 for a car with CO2 emissions of zero and £40,000 for any other car;
  • the car was first registered, in the UK or abroad, less than six years before the licence starts; and
  • the car was first registered on or after 1 April 2025, or it was registered before that date and has CO2 emissions above zero.

So a zero emission car registered before 1 April 2025 never pays the supplement, but one registered since then does if its price is over £50,000. Petrol, diesel and hybrid cars are tested against £40,000. GOV.UK confirms the supplement is paid for five years, starting from the second time the vehicle is taxed. The first year rate is not affected. Zero emission taxis are excluded by paragraph 1GE(5).

What counts as the list price?

Paragraph 1GF defines the price as the car’s list price plus the price of any non standard accessories attached when it is first registered. If there is no list price, a notional price is used. The definitions borrow sections 123 to 130 of the Income Tax (Earnings and Pensions) Act 2003, the same provisions that fix the list price for company car tax, except that VED itself is left out.

GOV.UK describes the list price as the published price before the car is first registered and before any discounts. Three practical points follow:

  • A fleet discount does not bring a car under the threshold. The test uses the published price, not what the business paid.
  • Factory options fitted before registration count, so a car with a base price under £40,000 can be pushed over it.
  • The test is applied once, at first registration. A second hand car bought for much less still carries the supplement until it is six years old.

Illustration only. A company buys a new petrol car with a list price of £38,500 and adds £2,000 of factory options. The price for VED is £40,500, so from the second licence the company pays £640 a year instead of £200 for five years, an extra £2,200 in total. A colleague’s electric car with a list price of £48,000, registered in the same month, pays the standard £200 because it is under the £50,000 zero emission threshold.

How are vans and older cars charged?

Light goods vehicles registered on or after 1 March 2001 and not over 3,500kg pay a flat rate of £360 for 12 months (tax class TC39), including zero emission vans. Euro 4 compliant vans registered between 1 March 2003 and 31 December 2006 pay £140. The separate income tax charge on employees is explained in our guide to the company van benefit.

Cars registered between 1 March 2001 and 31 March 2017 stay on the older CO2 bands A to M. A band A car (up to 100g/km) pays £20 a year and a band M car (over 255g/km) pays £790. Cars registered before 1 March 2001 are charged by engine size: £230 up to 1,549cc and £375 above it. The expensive car supplement only appears in the rates for cars registered on or after 1 April 2017.

Do electric business vehicles pay VED?

Yes. From 1 April 2025, electric cars, vans, motorcycles and tricycles must be taxed, and only electric heavy goods vehicles over 3,500kg remain exempt. A new zero emission car pays the £10 first year rate, then the standard rate from the second licence. Hybrids pay as well. When comparing an electric company car with a petrol one, the £10,000 gap between the £40,000 and £50,000 thresholds can change the running cost. The capital allowance side is covered in capital allowances on cars.

Can a business claim VED as an expense?

For sole traders and partners, GOV.UK lists vehicle tax licence fees among the allowable car and van expenses, alongside insurance, repairs, fuel and breakdown cover. Only the business proportion is allowable where the vehicle also has private use. See allowable business expenses.

If you use simplified expenses for a vehicle, the flat mileage rate replaces the actual costs of buying and running it, so VED cannot be claimed on top. For 2026 to 2027 the rate for cars and goods vehicles is 55p a mile for the first 10,000 business miles and 25p after that. Once you use the flat rate for a vehicle you must keep using it for as long as that vehicle is used in the business.

Which business vehicles are exempt?

  • vehicles used by a disabled person, where the exemption is claimed (one vehicle at a time);
  • vehicles, other than ambulances, used by organisations providing transport for disabled people;
  • historic vehicles made before 1 January 1986;
  • mowing machines designed and used only for cutting grass, and steam powered vehicles;
  • agricultural vehicles that only use public roads for purposes relating to agriculture, horticulture or forestry, as described in HMRC’s Excise Notice 75.

If a vehicle is taken off the road and declared off road (SORN), the unused vehicle tax is refunded.

What mistakes do businesses make?

  • Using the discounted price to decide whether the supplement applies, when the test is the published list price.
  • Forgetting options, which count towards the price if fitted at first registration.
  • Assuming electric cars are still exempt. Any zero emission car registered from 1 April 2025 with a price over £50,000 pays the supplement.
  • Claiming VED alongside mileage rates for a vehicle on simplified expenses.
  • Budgeting for one year of the supplement. It runs for five years, from the second licence.

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Sources

Reviewed by Christine Anderson, Broker, Solar Protect. Last reviewed 8 October 2026. Part of Accountapedia, the Solar Protect guide to UK tax and accounting. This page is general information, not personalised advice.