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

There are plenty of cost implications when owning a car, one of them being tax. It may slip to the back of your mind in all the excitement of buying your fresh set of wheels, but it’s certainly worth pausing for a moment to consider how much tax you’ll have to pay.

It depends on a lot of different factors, and just as you’ve got your head around it the requirements change. Car tax rates were adjusted during the 2024 autumn budget, so this handy guise will summarise all the fees you’ll be faced with.

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

The tax on your new car is best explained by splitting it up into three components: VAT, first-year VED and VED after the first year. 

New car VAT

All new cars sold will have VAT added which is charged at the standard 20% rate. This will be included in the price you see, unless it’s a business purchase in which case it may be listed separately. This is because businesses can claim back some or all of the VAT 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 used to be exempt from VED, however this will change from April 2025. EVs will be subject to much more favourable rates though. 

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 such as hybrids. 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. Currently, it works like this:

• Zero emission vehicles (electric cars) are currently exempt from the VED tax. This will change from April 2025 when they will be charged £10 for the first year.
• 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 £270. 

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 £1,650. 

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:

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

First year VED from April 2025

During the 2024 autumn budget it was announced that first year car tax is changing from April 2025. The biggest news here is that electric cars are no longer exempt, although they are only charged £10.

Cars emitting more than 75g/km of CO2 will also see their rates double. Below is a breakdown of first year tax rates from April 2025:

VED after the first year

The rates for the second year tax payment are currently £190 for both petrol and diesel cars, with alternative fuel vehicles being charged £10 less. There is also an additional £410 charge for vehicles that have a list price over £40,000.

If you were to keep your Nissan Qashqai for a second year, your tax rate would drop from £220 to £190. The diesel Range Rover D300 would be charged £190 + £410 (£600 in total) as it has a list price over £40,000. The Plug-in Hybrid Range Rover P440E would be charged £590 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.

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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.