Road tax officially known as Vehicle Excise Duty (VED) is one of the most universally familiar motoring costs in the UK. But when it comes to VAT, business owners and fleet managers frequently ask: is there VAT on road tax? Can I reclaim it? Does it affect my VAT return? The answers are more nuanced than a simple yes or no, and the distinction matters particularly for VATregistered businesses managing company cars and commercial vehicles. This comprehensive AccFirm guide sets out everything you need to know about VAT and road tax in the UK for 2026.
What Is Road Tax (Vehicle Excise Duty)?
Vehicle Excise Duty (VED) is a tax levied by the UK government on the ownership of vehicles registered for use on public roads in England, Scotland, Wales, and Northern Ireland. It is paid to HMRC via the DVLA (Driver and Vehicle Licensing Agency) and is a condition of keeping a vehicle on public roads unless the vehicle has a Statutory Off Road Notification (SORN).
VED rates for 2025/26 vary by vehicle type and emission levels:
| Vehicle Type (first year on new petrol/diesel) | VED Rate 2025/26 |
| Zero-emission cars (EVs — first year) | £0 |
| Zero-emission cars (EVs — subsequent years) | £190 (standard rate) |
| 1–50g/km CO2 emissions (first year) | £10 |
| Cars 1–50g/km (subsequent years) | £190 |
| Cars 51–75g/km CO2 (first year) | £30 |
| Cars over 255g/km CO2 (first year) | £5,490 |
| Standard petrol/diesel first year (161–170g/km) | £1,020 |
| Motorhomes and larger vehicles variable by engine size | Varies |
Is There VAT on Road Tax?
The direct answer is: No Vehicle Excise Duty is not subject to VAT. VED is itself a tax (a duty), not a commercial supply of goods or services. Under UK VAT law, payments made to government authorities as a condition of law (such as taxes, duties, and fees imposed by statute) are outside the scope of VAT.
This means:
- When you pay road tax to the DVLA, no VAT is included in the amount
- There is no VAT to reclaim on road tax payments
- Road tax does not appear on a VAT invoice and has no VAT element
- It should be coded in your bookkeeping as an expense outside the scope of VAT
Can Businesses Reclaim VAT on Road Tax?
As explained above, there is no VAT on VED therefore there is nothing to reclaim. However, this question is often asked in the context of a wider query about car-related VAT, so it is worth addressing the broader VAT picture for business motoring:
VAT on Car Purchase
Businesses cannot reclaim VAT on the purchase of a car unless it is used exclusively for business purposes with no private use permitted. Given that HMRC’s position is that virtually all company cars have some element of private use, VAT reclaim on car purchases is blocked in almost all circumstances. Commercial vehicles (vans, lorries, pickup trucks) are different VAT is generally reclaimable.
VAT on Fuel
Businesses can reclaim some or all VAT on fuel depending on the type of vehicle and usage:
- Commercial vehicles used entirely for business: Full VAT reclaim on fuel
- Cars with mixed business/private use: Either use the fuel scale charge system or only reclaim VAT on the business element with detailed mileage records
- Employee mileage expenses: VAT can be reclaimed on the fuel element of HMRC approved mileage rate payments at the fuel VAT fraction (currently 1/6th for standard-rated fuel)
VAT on Repairs and Maintenance
VAT on car repairs and maintenance is subject to the same rules as car purchase VAT if the car has any private use element, only 50% of the input VAT can be reclaimed. For commercial vehicles used solely for business purposes, full reclaim is available.
VAT on Car Leasing
For cars leased for business with any private use element, only 50% of the VAT on the lease rental is reclaimable. The remaining 50% is a permanent business cost. This is the so-called “50% leasing block” a specific VAT rule applying to car leasing.
Insurance Premium Tax on Road Tax: Another Layer
Whilst there is no VAT on VED, a related confusion sometimes arises with motor insurance. Motor insurance premiums are subject to Insurance Premium Tax (IPT) at 12%, not VAT. Like VED, IPT on motor insurance cannot be reclaimed by VAT-registered businesses it is an irrecoverable cost, similar to the non-reclaimable element of car VAT.
Road Tax for Electric Vehicles from 2026
From 1 April 2026, zero-emission electric vehicles (EVs) became liable for Vehicle Excise Duty for the first time, ending the previous VED exemption. Key points:
- First year rate for new EVs: £0 (still £0 in 2025/26 due to existing VED table structure)
- Standard rate from second year onwards: £190 per year (same as most other cars)
- Premium car supplement: EVs with a list price over £40,000 are subject to the £410 per year premium supplement for years 2–6
- This is a significant change for EV fleets business vehicle cost calculations now need to include VED for electric vehicles
Bookkeeping Treatment of Road Tax for UK Businesses
For VAT return purposes, road tax payments should be coded as:
- VAT code: Outside the scope (OS or OOS) no VAT involved
- In accounting software: Do not assign a VAT code to road tax transactions treat as zero for VAT purposes
- For P11D purposes: If road tax is paid for an employee’s company car, it may form part of the car benefit calculation but this is an Income Tax matter, not a VAT matter
- For CT purposes: Road tax paid for business vehicles is a deductible Corporation Tax or Income Tax expense
Frequently Asked Questions: VAT on Road Tax UK
Do I pay VAT on top of road tax?
No. VED (road tax) is itself a tax and is outside the scope of VAT. The amount you pay to the DVLA contains no VAT element.
Can I include road tax as a VAT expense on my VAT return?
No. Road tax has no VAT element and should not appear in Box 4 (input VAT reclaimable) on your VAT return. Include it as an outside-scope expense in your bookkeeping.
Is road tax a deductible business expense?
Yes VED paid for a vehicle used wholly or partly for business purposes is a deductible expense for Corporation Tax or Income Tax purposes. For cars with mixed private use, only the business proportion is deductible.
Has the VAT treatment of road tax changed for 2026?
No change in VAT treatment. Road tax remains outside the scope of VAT. The notable 2026 change is that EVs are now subject to VED from April 2027 but the VAT treatment (there is none) remains the same.