2021-2022 Road tax (VED) changes – how much will road tax cost for new cars?

March 03, 2021 by

The amount you’ll pay in car taxes will rise for most new-car drivers in 2021, but the Government’s 2021 Budget announcement confirms fuel duty will remain frozen. 

The Government has announced its 2021 Budget, and with it an increase in Vehicle Excise Duty (VED). This VED (often called road tax) means you’ll have to pay more each year to keep driving your car. The 2021 Budget also confirms that the planned rise in fuel duty (the tax you pay per-litre of fuel) will be cancelled. Instead, fuel duty will remain at the same level (57.95p per litre) that it has been for the last 10 years.

2021 car tax (VED) increase

Vehicle excise duty (VED) rates tend to increase bit-by-bit every year, and the same is true of the tax-year beginning in April 2021, although the rate has been fixed for some low-emissions vehicles.

As before, the amount of tax you’ll pay will depend on your new car’s CO2 emissions. Those that emit zero grams per kilometre of CO2 will cost you nothing to tax, while petrol- and most diesel-powered cars (including hybrids) that emit between 1g and 50g per kilometre will set you back £10 for the first 12 months. This, and the £25 charge for cars that emit between 51g and 5g per kilometre, is unchanged from last year.

However, cars that emit between 76g and 150g per kilometre of CO2 will see their VED rates rise by £5 over the 2020/’21 rate, to £220. The more CO2 a car emits per kilometre, the greater the increase in road tax for 2021. The biggest step-up in VED applies to cars that emit more than 255g per kilometre of CO2. These will set you back £2,245 to tax for the first year, up from £2,175 in 2020.

Fully electric and hydrogen fuel cell cars will retain their road-tax (VED) exemption status, as a result of having zero tailpipe emissions.

See the full 2021 road-tax (VED) breakdown in this table:

CO2 emissions
(g/km)
First-year Rate Standard (second-year) rate
Zero £0 £0
1 to 50 £10 £155
51 to 75 £25 £155
76 to 90 £115 £155
91 to 100 £140 £155
101 to 110 £160 £155
111 to 130 £180 £155
131 to 150 £220 £155
151 to 170 £555 £155
171 to 190 £895 £155
191 to 225 £1,345 £155
226 to 255 £1,910 £155
Over 255 £2,245 £155

After this initial 12-month period, every petrol-, diesel- and hybrid-powered car will set you back £155 per year to tax – £5 more than in 2020 – while cars powered by biofuel or liquid-petroleum gas (LPG) will cost £145 per year to tax.

Cars that cost more than £40,000 to buy incur an extra £335 levy (up from £325 in 2020), payable for the first five years after the car is registered. This doesn’t apply if the car emits zero grams per kilometre of CO2 (for example, cars powered purely by electricity or hydrogen).

2021 company car tax

The Benefit-in-Kind (BiK) tax rates for petrol- and diesel-powered company cars (including hybrids) aren’t set to change in 2021.

However, fully electric and hydrogen fuel-cell cars will no longer be exempt from company car tax charges. Instead, they’ll be moved into the 1% BiK rate category for the 2021/2022 tax year.

2021 clean-air zones

At the time of writing, the UK’s only designated clear air zone is London’s Ultra Low Emission Zone (ULEZ). It covers the same area of central London that’s already part of the city’s Congestion Zone. Drivers who enter this part of London in a car that doesn’t meet the required emissions standards (Euro 4 for petrol-powered cars; Euro 6 for diesel) will need to pay a daily charge of £12.50 – on top of any Congestion Charge fees.

London’s ULEZ is set to increase in size fairly soon, too. On 25th October 2021, the ULEZ area will be expanded up to (but not including) the North and South Circular ring roads.

In addition to the ULEZ expansion, more clean air zones will be introduced before the end of the year. A clean air zone will come into force in Bristol city centre on 15th March 2021, and a clean air zone covering the area within the A4540 ring road in Birmingham will go live in June 2021.

Drivers entering the Birmingham zone will be charged an as-yet-unspecified fee to enter this zone, though Bristol City Council has confirmed the charges for its clean air zone won’t apply to privately-owned cars.

2021 fuel duty

When you’re filling up with petrol or diesel, most of the price you pay comes from an additional tax called fuel duty. The current fuel duty rate in the UK is 57.95 pence per litre, which means (depending on your local pump prices) this tax could account for half the money you spend on petrol or diesel for your car.

Usually, fuel duty rises in line with inflation, though the rate has been frozen at the 57.95 pence-per-litre level since March 2011. The Government’s 2021 Budget has recognised that private cars are essential for those who still need to travel during the pandemic. As a result, the planned rise in fuel duty has been scrapped.

Sepi Arani, head of OEM at carwow, said “The announcement from the Chancellor of the Exchequer today that fuel duty will once again not increase marks the 10th year that fuel duty remains frozen.

“While fuel has decreased in necessity over the past 12 months, lockdown is set to lift over the coming months. Does this indicate that the government sees increasing this tax as a far less lucrative option as we witness the rise of EVs? Either way, it’s positive to see that British motorists aren’t, at least for now, bearing the weight of budget challenges.”

Road pricing

While there are some road-pricing measures in the UK, such as toll bridges and the London ULEZ, the concept of charging motorists an additional cost to drive on certain roads isn’t as widespread as in countries such as France and Italy. However, with the revenue from VED and fuel duty rates set to fall in the coming years as plug-in cars become more and more popular, road pricing is being mooted as a possible solution to make up for those lost revenues.

No such plans were announced as part of the 2021 Budget, but it’s perhaps only a matter of time before road pricing becomes a big part of the agenda.

Want to keep up to date with the latest news?

Sign up for the carwow newsletter by entering your email address below to receive regular updates featuring our latest videos, reviews, news stories and blog posts from across the world of cars. You can unsubscribe from these emails at any time.

By clicking the submit button you agree to our T&Cs and confirm you have read our Privacy Policy.