How much tax will you pay on a new car purchase?

December 12, 2022 by

Car ownership comes with several cost implications, one that few of us consider is the tax we’ll have to pay. Even if you are aware of it, the amount depends on a variety of factors, and just as you get your head around the costs, the requirements change. To help make sense of it all we have put together a handy guide that covers all the pertinent factors regarding taxing a new car.

How much tax do I pay when I buy a new car?

Car taxation is best explained by splitting it up into three separate components:

  • New car VAT

Every new car sold has a VAT component that is charged at the standard 20% rate. This is already included in the price you see and is generally only shown separately for business purchases. That is because businesses can claim some or all of the VAT back depending on how the vehicle is used.

  • First year VED

Vehicle Excise Duty (VED) is a tax levied on cars using the roads in the UK. These funds used to be specifically allocated to maintaining the roads, but it now forms part of the general tax pool.  

There are varying VED charges and regulations based on when the vehicle was first registered. In the case of a new car the rules introduced since 1 April 2017 are the ones that apply. 

These state that every new car registered is liable for a once off tax payment based on its CO2 emissions. These figures are periodically updated to account for new technologies and taxation requirements. Electric cars are currently exempt from VED.

  • VED after the first year

The VED tax for the second year is simplified into a flat fee for petrol and diesel cars, with a slight saving offered for alternative fuel vehicles. Vehicles that cost over £40,000 pay an additional charge for an additional five years. Electric cars still enjoy an exemption from both of these fees, but this will change from April 2025.

New car VAT

New cars are subject to the standard 20% tax rate. VAT can be reclaimed in certain cases, such as when a vehicle is used solely for business purposes and on the purchase of vans and commercial vehicles. Company vehicles used for both business and personal use may be liable for a 50% VAT refund.

First year VED

Every new car registered since 1 April 2017 will be charged a VED tax based on its CO2 emissions levels. 

  • Zero emission vehicles (electric cars) are currently exempt from the VED tax. This will change from April 2025 when they will be charged an annual £165 flat rate. 
  • Petrol cars are charged on a sliding scale based on their emission levels, diesel cars that meet the Real Driving Emissions 2 (RDE2) standards are charged at the same rate.
  • Diesel cars that do not meet the RDE2 standards pay an additional fee that increase exponentially based on their emissions levels. 
  • Alternative fuel cars (Hybrid, bioethanol, LPG) get a £10 saving over the rates charged for petrol cars.

As an example, an entry-level Nissan Qashqai comes fitted with a 140bhp 1.3-litre mild-hybrid petrol engine. It produces 143g/km of CO2 so will be charged £220. 

At the other end of the scale, a Range Rover D300 has a 300bhp diesel engine emitting 202 g/km of CO2. Its first year road tax will be £1,420. 

However, if you opt for the P440E which has a 440bhp plug-in hybrid engine, you will pay no road tax at all. That’s because it has a 19g/km CO2 rating and is classified as an alternative fuel vehicle. 

Below is a comprehensive list of all the CO2 emissions bands:

CO2 emissions Diesel cars meeting the RDE2 standard and petrol cars  Diesel cars not meeting the RDE2 standard Alternative fuel cars (Hybrid, Bioethanol, LPG)
0g/km £0 £0 £0
1 to 50g/km £10 £25 £0
51 to 75g/km £25 £120 £15
76 to 90g/km £120 £150 £110
91 to 100g/km £150 £170 £140
101 to 110g/km £170 £190 £160
111 to 130g/km £190 £230 £180
131 to 150g/km £230 £585 £220
151 to 170g/km £585 £945 £575
171 to 190g/km £945 £1,420 £935
191 to 225g/km £1,420 £2,015 £1,410
226 to 255g/km £2,015 £2,365 £2,005
Over 255g/km £2,365 £2,365 £2,355

If you are unsure what category your car fits in, you can use the tax checker tool provided by the Vehicle Certification Agency (VCA).

VED after the first year

The rates for the second year tax payment are currently £165 for both petrol and diesel cars, with alternative fuel vehicles being charged £10 less. There is also an additional £355 charge for vehicles that have a list price over £40,000. Electric vehicles are exempt from both of these charges– for now. 

Petrol and diesel cars registered after 1 April 2017 £165 
Alternative fuel cars (Hybrid, Bioethanol, LPG)  £155
Cars with a list price higher than £40,000 (excluding EVs) £355 charge for five years – from second year of tax
Electric cars No payment – set to change in 2025

If you were to keep your Nissan Qashqai for a second year, your tax rate would drop from £220 to £155. The diesel Range Rover D300 would be charged £165 + £355 (£520 in total) as it has a list price over £40,000. The Plug-in Hybrid Range Rover P440E would be charged £510 for its second year as it benefits (slightly) from its alternative fuel status.

Aside from the tax component, you may be subject to other fees and charges when buying a new car. The total cost to have your car ready to drive is sometimes referred to as the On The Road price (OTR). This is the car’s price including VAT, delivery fees, registration and the first year’s road tax as detailed above. The good news is that every offer you receive from Carwow already includes these costs.

Change cars online with Carwow

Looking for an easy way to change your car? Then Carwow is the place to go. You can sell your car online for a great price, and get the best deals on a new one. All through our network of trusted dealers and all from the comfort of your home. Tap the button below to get started today.