What Is Road Tax (Vehicle Excise Duty)?

Vehicle Excise Duty (VED), commonly called road tax, is a tax on vehicles registered for use on public roads in England, Scotland, Wales and Northern Ireland. It is administered through the DVLA and must generally be paid unless the vehicle has a Statutory Off Road Notification (SORN).

VED rates depend on factors such as the vehicle type, registration date and CO₂ emissions.

Is There VAT on Road Tax?

No. Vehicle Excise Duty is outside the scope of VAT because it is a government tax rather than a charge for goods or services.

This means:

• No VAT is included in your VED payment.
• You cannot reclaim VAT on road tax.
• Road tax does not have a VAT element.
• Businesses should normally record VED as an outside-scope VAT expense in their bookkeeping.

Can Businesses Reclaim VAT on Road Tax?

No. Because VED does not contain VAT, there is no input VAT for a business to reclaim.

However, businesses may be able to reclaim VAT on other vehicle-related costs, depending on how the vehicle is used.

VAT on Car Purchase

VAT on a car purchase is generally restricted where there is private use. In certain circumstances, such as a car being used exclusively for business purposes, VAT recovery may be available.

Commercial vehicles such as vans and lorries can have different VAT treatment, particularly where they are used solely for business purposes.

VAT on Fuel

The amount of VAT a business can reclaim on fuel depends on the vehicle and how it is used.

For example:

• A commercial vehicle used entirely for business may allow full VAT recovery.
• A car with both business and private use may require the appropriate VAT treatment for private use.
• Businesses claiming VAT on business mileage need to follow the relevant HMRC rules and keep suitable mileage records.

VAT on Repairs and Maintenance

VAT charged on vehicle repairs and maintenance may be recoverable, depending on the type of vehicle and its business and private use.

For cars subject to both business and private use, special VAT restrictions can apply. Commercial vehicles used exclusively for business purposes may have more favourable VAT treatment.

VAT on Car Leasing

For a leased car that has both business and private use, businesses generally cannot reclaim all the VAT on the lease payments.

In many cases, 50% of the VAT on the leasing charge is recoverable, with the remaining amount treated as a business cost.

Insurance Premium Tax on Motor Insurance

Motor insurance should not be confused with road tax.

Motor insurance is generally subject to Insurance Premium Tax (IPT) rather than VAT. IPT is separate from Vehicle Excise Duty and normally cannot be reclaimed as input VAT by a VAT-registered business.

Road Tax for Electric Vehicles

Electric vehicles are no longer permanently exempt from Vehicle Excise Duty.

From 1 April 2025, zero-emission cars became subject to VED under the revised vehicle tax rules. This means businesses operating electric vehicles should include VED when calculating their overall vehicle costs.

The VAT treatment remains unchanged: VED itself is outside the scope of VAT.

Bookkeeping Treatment of Road Tax for UK Businesses

When recording road tax in accounting software, businesses should normally treat the payment as an outside-scope VAT expense.

Key points include:

• VAT treatment: Outside the scope of VAT.
• VAT return: No input VAT should be claimed.
• Bookkeeping: Record the full VED payment as the relevant vehicle expense.
• Corporation Tax: Business vehicle costs may be deductible where they meet the normal rules for allowable expenses.

Frequently Asked Questions: VAT on Road Tax UK

Do I Pay VAT on Top of Road Tax?

No. Vehicle Excise Duty is a tax and does not include VAT. You therefore do not pay VAT on top of your road tax.

Can I Claim Road Tax as Input VAT?

No. VED contains no VAT, so there is nothing to reclaim on your VAT return.

Should Road Tax Appear on My VAT Return?

Road tax should not be included as reclaimable input VAT. It should normally be recorded as an outside-scope expense in your bookkeeping records.

Is Road Tax a Deductible Business Expense?

Business vehicle costs, including VED, can generally be deductible when incurred for business purposes, subject to the normal Corporation Tax or Income Tax rules.

Has the VAT Treatment of Road Tax Changed?

No. The VAT treatment remains the same: Vehicle Excise Duty is outside the scope of VAT. Changes to VED rates or electric vehicle taxation do not turn road tax into a VATable supply.