No. There is no VAT on road tax in the UK. Road tax, officially called Vehicle Excise Duty (VED), is a statutory government duty administered through the DVLA and sits outside the scope of VAT.
That means:
- you do not pay VAT on Vehicle Excise Duty;
- the DVLA does not add VAT to your vehicle tax payment;
- a VAT-registered business cannot reclaim VAT on road tax because no VAT was charged;
- VED should not be treated as a zero-rated purchase; and
- motor vehicle licence duty should not be included in VAT Return Box 4 or Box 7.
HMRC’s VAT Return guidance specifically excludes motor vehicle licence duty from Box 7, together with expenditure that is outside the scope of VAT.
For business owners, the key accounting distinction is therefore:
£200 road tax paid = £200 vehicle cost + £0 input VAT.
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).
Is There VAT on Road Tax?
No. Vehicle Excise Duty does not contain VAT. Paying £200 of road tax to the DVLA does not mean you have paid £166.67 plus £33.33 VAT. The entire £200 is Vehicle Excise Duty, so there is no input VAT for a VAT-registered business to reclaim.
This answers several common questions at once:
| Question | Answer |
|---|---|
| Is there VAT on road tax? | No |
| Is there VAT on vehicle tax? | No |
| Is there VAT on car tax? | No |
| Does road tax have VAT? | No |
| Does vehicle tax have VAT? | No |
| Does DVLA charge VAT on VED? | No |
| Can a business reclaim VAT on road tax? | No |
| Is road tax zero-rated? | No |
| Is road tax VAT exempt? | Not technically — it is outside the scope |
The distinction in the final two rows matters for accurate VAT accounting.
Is Road Tax VAT Exempt, Zero-Rated or Outside the Scope?
Vehicle Excise Duty is best treated as outside the scope of VAT, not as a zero-rated supply. “Zero-rated”, “exempt” and “outside the scope” can all result in no VAT being charged, but they have different meanings under UK VAT rules and can affect VAT Return reporting differently.
Zero-rated
A zero-rated supply is still within the VAT system and is taxable at 0%.
Examples can include qualifying books, children’s clothing and certain food products.
Because the transaction remains a taxable supply, zero-rated transactions can still be relevant to VAT registration and VAT Return reporting.
VAT exempt
An exempt supply is within the VAT framework but exempt from VAT.
Examples can include certain insurance, finance, healthcare and education supplies.
Input VAT recovery connected with exempt activities can be restricted under the partial exemption rules.
Outside the scope of VAT
An outside-scope payment does not form part of the UK VAT system in the same way.
HMRC’s VAT guidance distinguishes exempt transactions from transactions that are outside the scope, while its VAT Return guidance specifically says motor vehicle licence duty should not be entered in Box 7.
Road tax falls into this category.
Correct treatment: Outside the scope / No VAT
Incorrect treatment: Zero-rated purchase
That difference matters particularly when bookkeeping software sends different VAT codes to different boxes on the VAT Return.
Does DVLA Charge VAT on Vehicle Tax?
No. The DVLA does not charge VAT on the Vehicle Excise Duty it collects. If your business pays £200 of VED, there is no separate VAT element hidden inside that payment and no VAT invoice is required for an input VAT claim because no input VAT exists.
The Driver and Vehicle Licensing Agency administers vehicle taxation, but paying VED is different from buying a commercial service from a VAT-registered supplier.
You are paying a statutory vehicle duty.
So if your bank feed shows:
DVLA — £200
you should not calculate £33.33 of VAT by dividing the payment by six.
Doing that would create an incorrect input VAT claim.
Is there VAT on DVLA vehicle tax?
No.
The answer remains the same whether you describe it as:
- road tax;
- car tax;
- vehicle tax;
- Vehicle Excise Duty;
- VED; or
- the older expression “road fund licence”.
For VAT purposes, the statutory vehicle duty itself contains no VAT.
Can a Business Reclaim VAT on Road Tax?
No. A VAT-registered business cannot reclaim VAT on Vehicle Excise Duty because the DVLA has not charged VAT in the first place. Input VAT can only be reclaimed where the relevant VAT recovery conditions are satisfied and VAT has actually been incurred.
For example, suppose a company pays:
- road tax: £200;
- vehicle servicing: £600 including £100 VAT;
- qualifying fuel: £240 including £40 VAT.
The road tax produces:
Input VAT claim: £0
The servicing and fuel costs require separate VAT analysis because VAT has actually been charged on those supplies.
This is why businesses should not apply one VAT rule to every vehicle expense.
Does Road Tax Go on a VAT Return?
Road tax should not generate an amount in VAT Return Box 4, and HMRC specifically says motor vehicle licence duty should not be included in Box 7. It should be recorded as an outside-scope business transaction rather than as a zero-rated VAT purchase.
Box 4
Box 4 records input VAT reclaimed on purchases and expenses.
VED contains no VAT.
Therefore:
Road tax in Box 4 = £0
Box 7
Box 7 generally records the value of qualifying purchases and other inputs excluding VAT.
However, HMRC specifically tells businesses not to include motor vehicle licence duty in Box 7.
So a £200 VED transaction should not be converted into:
- £166.67 net;
- £33.33 VAT; or
- a £200 zero-rated Box 7 purchase.
It is an outside-scope transaction.
How to Record Road Tax in Xero and QuickBooks
Record VED to an appropriate motor or vehicle expense account and use an outside-scope or “No VAT” treatment. Do not use a 20% VAT code and do not use a zero-rated VAT code merely because the VAT amount happens to be £0.
Recording road tax in Xero
A typical Xero entry would be:
| Field | Suggested treatment |
|---|---|
| Payee | DVLA |
| Account | Motor Vehicle Expenses / Vehicle Running Costs |
| Amount | Full VED paid |
| VAT treatment | No VAT / no-tax treatment |
| Input VAT | £0 |
Xero distinguishes its No VAT tax treatment from zero-rated VAT codes. Its UK chart-of-accounts functionality includes separate tax rates for No VAT, Zero Rated Expenses and Exempt Expenses.
Your exact account name may differ depending on your chart of accounts.
The important point is the VAT treatment, not whether the expense account is called “Motor Expenses”, “Vehicle Costs” or “Road Tax”.
Recording road tax in QuickBooks
QuickBooks UK generally uses its No VAT code for transactions treated as outside the scope of VAT.
QuickBooks states that this code is used for transactions that do not form part of the VAT Return.
A typical entry would therefore be:
DVLA → Motor Vehicle Expense → No VAT
Software menus and VAT-code labels can change, so businesses should verify the coding used in their particular Xero, QuickBooks or other accounting-software setup.
Do not use 0% VAT just because no VAT was charged
This is one of the most common bookkeeping mistakes.
0% VAT means the transaction is zero-rated but remains within the VAT system.
No VAT / outside scope means the transaction sits outside normal VAT reporting.
For VED, the second treatment is appropriate.
VAT on Other Vehicle Costs
Road tax has no VAT, but many other motoring expenses do. The recovery rules depend on the type of cost, whether the vehicle is a car or commercial vehicle, how it is used and whether private use exists. Do not apply the road-tax treatment automatically to fuel, leasing or repairs.
A useful comparison is:
| Vehicle cost | VAT charged? | Typical VAT recovery position |
|---|---|---|
| Vehicle Excise Duty | No | No VAT to reclaim |
| Car purchase | Usually | Commonly blocked unless an exception applies |
| Car lease rental | Usually | Often 50% of VAT recoverable where private use exists |
| Repairs and servicing | Usually | Can generally be reclaimed if business pays and vehicle has business use |
| Fuel | Usually | Depends on business/private use method |
| Motor insurance | No VAT | Usually subject to Insurance Premium Tax instead |
| Commercial vehicle purchase | Often | Normal input VAT rules can allow recovery depending on circumstances |
VAT on buying a car
The general rule is that VAT on the purchase of a car is blocked.
HMRC does, however, permit recovery in specific circumstances, including qualifying cars used:
- primarily as taxis;
- for driving instruction;
- for self-drive hire;
- as qualifying stock-in-trade; or
- exclusively for business and not made available for private use.
HMRC emphasises that simply buying a car “for the business” is not enough if it is also available for private use.
VAT on car leasing: the 50% block
The VAT rules are different for a leased qualifying car.
Where a car is leased for business purposes and is available for private use, a business can normally recover 50% of the VAT on the lease rental, subject to the usual VAT recovery and partial-exemption rules.
The remaining 50% is blocked as a proxy for private use.
This 50% leasing block applies to the lease charge.
It should not automatically be applied to repairs and servicing.
VAT on repairs and servicing
If a vehicle is used for business and the business pays for the repairs or maintenance, HMRC says the VAT charged can generally be reclaimed as input tax, subject to the normal rules.
Importantly, HMRC says it does not matter that the vehicle is also used for private motoring.
This is different from the 50% restriction applying to qualifying car lease rentals.
For a sole proprietor or partner, VAT on repairs cannot be reclaimed where the vehicle is used solely for private motoring.
VAT on fuel
Fuel can involve more choices.
Where a business pays for fuel, HMRC allows different approaches depending on business and private use.
A business may, depending on the circumstances:
- reclaim VAT on business-only fuel;
- reclaim all qualifying fuel VAT and apply the fuel scale charge where private fuel is provided;
- use detailed mileage records to reclaim only the business element; or
- reclaim no input VAT on fuel.
HMRC fuel scale charge is based on the vehicle’s CO2 emissions and is designed to account for private fuel where the business has reclaimed VAT.
Commercial vehicles vs cars
Do not assume that a van, pickup, lorry or other vehicle follows the same VAT rules as a passenger car.
The special input VAT block primarily targets cars.
VAT on a qualifying commercial vehicle may be recoverable under the normal input tax rules where the purchase relates to the VAT-registered business’s taxable activities.
The actual VAT classification of a vehicle matters, so businesses should check the vehicle specification rather than relying solely on the manufacturer’s marketing description.
VAT on motor insurance
You do not normally pay VAT on an ordinary motor insurance premium.
Instead, most motor insurance is subject to Insurance Premium Tax (IPT) at the standard 12% rate.
IPT is not VAT.
A VAT-registered company therefore cannot place the IPT amount into VAT Return Box 4 as input VAT.
Electric Vehicle Road Tax Rules for 2026/27
Electric cars are no longer generally exempt from Vehicle Excise Duty. EVs became liable to VED from 1 April 2025. For 2026/27, a new zero-emission car registered from 1 April 2025 pays £10 in its first year and normally £200 a year from the second year.
The change is important for business fleets because older articles still state that electric cars pay £0 road tax.
That is no longer generally correct.
EV road tax: 2025/26 vs 2026/27
| Rule | 2025/26 | 2026/27 |
|---|---|---|
| New zero-emission car first-year VED | £10 | £10 |
| Standard annual rate after first year | £195 | £200 |
| EV VED exemption | Ended 1 April 2025 | No general exemption |
| Expensive Car Supplement threshold for qualifying EVs | Transitional rules | More than £50,000 |
| Expensive Car Supplement 2026/27 | — | £440 per year |
Current GOV.UK guidance confirms the £200 standard rate and £10 first-year zero-emission rate for 2026/27.
Expensive Car Supplement for electric cars
For 2026/27, qualifying zero-emission cars with a list price above £50,000 can be subject to the Expensive Car Supplement.
The supplement is currently £440 per year, on top of the standard rate, and generally applies for five years from the second vehicle-tax payment.
For petrol and diesel cars, the relevant list-price threshold remains above £40,000.
The EV threshold increased to £50,000 from 1 April 2026.
Does EV road tax include VAT?
No.
An electric vehicle becoming liable for VED does not change the VAT treatment.
Whether VED costs:
- £10;
- £200;
- £640 including the current standard rate plus Expensive Car Supplement; or
- another applicable amount,
no VAT is contained within the VED payment itself.
Is Road Tax Tax-Deductible for a Business?
Road tax can be a legitimate business motoring expense for direct-tax purposes even though there is no VAT to reclaim. VAT treatment and Income Tax or Corporation Tax deductibility are separate questions.
For self-employed people using actual vehicle costs, HMRC specifically lists vehicle tax licence fees among potentially allowable motoring expenses.
Where a sole traders vehicle has both business and private use, only the relevant business element of actual vehicle costs is normally deductible.
Sole traders using simplified mileage
If you use HMRC’s simplified mileage method, vehicle running costs are already represented by the mileage rate.
You should therefore not claim road tax separately on top of the mileage rate for the same vehicle.
Limited companies
For company-owned vehicles, road tax is dealt with as part of the company’s vehicle running costs under the relevant Corporation Tax rules.
Where a car is available to a director or employee for private use, separate company car benefit and P11D/payrolling-benefits rules may also need to be considered.
Those employment-tax rules do not alter the fact that VED itself contains no VAT.
Common VAT and Road Tax Bookkeeping Mistakes
The most common VED errors come from treating “no VAT charged” as though it always means “0% VAT”. In reality, road tax is outside the VAT system, so using a zero-rated purchase code can cause the amount to flow into the wrong VAT Return box.
Common errors include:
- dividing the DVLA payment by six and inventing a VAT amount;
- coding VED as 20% VAT;
- coding it as a zero-rated purchase;
- including VED in VAT Return Box 7;
- applying the 50% car-leasing VAT restriction to servicing and repairs;
- assuming electric cars still have a general road-tax exemption;
- treating Insurance Premium Tax as reclaimable VAT;
- confusing a direct-tax deduction with an input VAT claim.
A cost can be deductible for Income Tax or Corporation Tax purposes without containing reclaimable VAT.
Road tax is a good example.
If your bookkeeping software or VAT Return contains inconsistent motoring codes, AccFirm VAT accountants can review the VAT treatment of vehicle costs, leases, fuel, repairs and other business expenses before the return is submitted.
Frequently Asked Questions
Is there VAT on vehicle tax?
No. UK Vehicle Excise Duty is outside the scope of VAT. There is no input VAT included in the amount paid to the DVLA, so a VAT-registered business cannot reclaim VAT on vehicle tax.
Does road tax include VAT?
No. Road tax does not include VAT. If you pay £200 of VED, the entire £200 is the vehicle duty. It is not £166.67 plus £33.33 VAT.
Is road tax VAT exempt?
Technically, it is more accurate to describe Vehicle Excise Duty as outside the scope of VAT, rather than VAT exempt or zero-rated. HMRC also specifically excludes motor vehicle licence duty from VAT Return Box 7.
Is there VAT on DVLA vehicle tax?
No. The DVLA does not charge VAT on Vehicle Excise Duty. VED has no VAT element, so there is nothing for a VAT-registered business to reclaim.
Need Help With VAT on Business Vehicle Costs?
Road tax itself is straightforward: there is no VAT to reclaim.
The harder questions usually concern the other costs around the vehicle car purchases, leasing, private use, fuel, EV charging, repairs, commercial vehicles and employee benefits.
AccFirm VAT accountants help UK businesses apply the correct VAT treatment, maintain accurate digital records and prepare compliant VAT Returns.
Correct coding at the bookkeeping stage is far easier than correcting an overstated input VAT claim after submission.