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Vehicle Excise Duty (VED)


Vehicle Excise Duty (VED), also known as car or road tax, is a tax that is levied in the United Kingdom on most types of vehicles that are used or parked on public roads. This duty is primarily based on the vehicle’s engine size, fuel type, and carbon dioxide (CO2) emissions. The generated revenue is intended for public road improvements and maintenance.


Vehicle: /ˈviː.ɪ.kəl/Excise: /ˈek.saɪz/Duty: /ˈduː.ti/(VED): /viː ee diː/

Key Takeaways

  1. Origin and Purpose: Vehicle Excise Duty (VED) is a UK-based tax levied on the ownership of vehicles. It is implemented with the goal of reducing excessive CO2 emissions and encouraging the use of less polluting vehicles.
  2. Calculation of VED: The amount of VED a vehicle owner needs to pay initially depends on the CO2 emissions of their vehicle. Higher-emission vehicles typically incur a higher first-year rate. After the first year, there are standard rates that apply depending on the type of vehicle (petrol, diesel, alternative fuel, or zero-emission).
  3. Exemptions and Discounts: Some vehicles are exempted from VED such as vehicles used by a disabled person, mobility scooters, and historic vehicles that are more than 40 years old. Also, vehicles with zero carbon emissions and those that run strictly on alternative fuels can qualify for a discounted rate.


Vehicle Excise Duty (VED) is an important term in business and finance, particularly for those operating in the UK’s automobile and transportation industries, as it refers to the tax levied on the ownership or use of vehicles. This taxation can have a significant impact on the decisions made by both businesses and consumers with regards to purchasing or maintaining vehicles. VED can serve as a substantial revenue stream for the government, which can be invested into the development and maintenance of road infrastructure. Moreover, since it’s often structured to incentivize lower-emissions vehicles, VED can play a crucial role in environmental sustainability strategies, and in shaping the wider market trends towards greener, more efficient vehicles.


Vehicle Excise Duty (VED), widely known as road tax or car tax, is a type of tax imposed by the government primarily to regulate and manage the impact of vehicles on the environment. The primary purpose of this duty is to offset the environmental damage caused by carbon dioxide emissions from vehicles. These funds can potentially be utilized to enhance infrastructure and facilitate projects aimed at reducing carbon footprints characterized by vehicle emissions. Additionally, VED also serves as a regulatory tool to incentivise the use of more environmentally-friendly vehicles, as lower-emission vehicles are subject to lower tax rates.The revenue generated from Vehicle Excise Duty is typically used to maintain and develop the country’s transport infrastructure, including investments in roads, bridges and public transportation facilities. Imposing VED therefore not only works as a control mechanism for minimizing environmental degradation, but also helps in generating significant public funds. Hence, VED can influence both the purchasing decision of potential vehicle buyers, swaying them towards environmentally-friendly alternatives, and support nationwide emission reduction targets and transportation infrastructure enhancement.


Example 1 – Green Vehicles: In the UK, since 2017, all vehicles with zero greenhouse gas emissions avoid paying any Vehicle Excise Duty (VED), including purely electric cars or hydrogen vehicles. This specific VED policy aims to promote the use and production of green vehicles by making them significantly cheaper to own and operate.Example 2 – Luxury Cars: A luxury sports car such as a Lamborghini Aventador, with a list price of more than £40,000 and CO2 emissions rate of over 255g/km, would attract a higher rate of VED in the UK due to the heavy emission rate and a high list price. This scheme discourages the use of high emission vehicles. Example 3 – Older Vehicles: In older vehicles, VED is often based on engine size. For example, in the UK, if a vehicle was registered before 1st March 2001, the owner would pay a yearly rate of £170 for engines larger than 1549cc and £155 for vehicles with smaller engines. This reflects that older vehicles often have higher emissions and thus incur higher VED fees.

Frequently Asked Questions(FAQ)

What is Vehicle Excise Duty (VED)?

Vehicle Excise Duty (VED), also known as road tax, is a tax that is levied on almost all types of vehicles that are driven or parked on public roads in the UK. It is collected and enforced by the DVLA (Driver and Vehicle Licensing Agency).

How is VED calculated?

VED is calculated based on the vehicle’s CO2 emissions and its age. Newer vehicles and vehicles with low emissions typically have a lower tax rate. From 2017 onwards, tax rates have been based on a flat rate depending on its list price when new.

How often do I have to pay VED?

VED is typically paid annually, but there are also options to pay every six months or monthly. There may be a small premium if you choose to pay more frequently.

How do I pay my VED?

You can pay your VED online, by phone, or by post. You also have the option to set up a Direct Debit to make automatic payments.

Can I be exempt from paying VED?

Yes, there are certain situations where a vehicle might be exempt from VED. This includes vehicles used by a disabled person, vehicles used just for agriculture, horticulture and forestry, electric vehicles, and more.

What happens if I sell my vehicle or take it off the road?

If you sell your vehicle, the VED does not transfer to the new owner. You’ll receive a refund for any full months of tax left. If you take it off the road, you need to officially declare it with the DVLA; else, you are still liable for the tax payment.

What are the consequences of not paying VED?

If you do not pay your VED, you can face heavy fines and even prosecution. Moreover, your vehicle can be clamped or impounded.

Is VED the same thing as road tax?

Yes, Vehicle Excise Duty is often referred to as road tax, although the term road tax isn’t formally used in legislation.

How does VED relate to business vehicles?

If you have a vehicle you use for business purposes, you are still required to pay VED unless the vehicle falls under the exempt categories. The cost of VED can be a part of the vehicle’s running costs which could potentially be claimed as a business expense.

Where can I find more information about VED?

For more information about VED, including the current rates and how to pay, visit the official DVLA website or consult with a tax professional.

Related Finance Terms

  • CO2 Emissions Rate
  • Annual Road Tax
  • Vehicle Registration Certificate
  • Fuel Type
  • Vehicle Licensing

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