The UK car tax system went through a major overhaul in April 2025, and it has shifted again for 2026. Electric vehicles have lost their tax-free status, first-year rates for higher-emission cars have climbed, and the rules around the luxury car supplement have changed.
If you run a car personally, or provide vehicles through your business, these changes affect what you pay. Here’s where the rules stand in 2026, what’s coming next, and how to keep your costs down.
Electric Vehicles: The End of the Tax-Free Era
The biggest change is that electric vehicles are no longer exempt from Vehicle Excise Duty (VED). Since 1 April 2025, EV owners have paid road tax like everyone else, and what you pay depends on when your car was first registered.
- New EVs (registered on or after 1 April 2025): a £10 first-year rate, then the standard £200 a year from the second year onwards.
- Existing EVs (registered April 2017 to March 2025): the standard rate, now £200 a year (up from £195 in 2025/26).
- Older EVs (registered between 1 March 2001 and 31 March 2017): a reduced rate of £20 a year. Different rules apply to vehicles registered before March 2001, which are taxed on engine size.
For most EV drivers this is a modest annual cost rather than a shock, and electric cars can still offer lower running costs and, as we’ll come to, real advantages on company car tax. But the days of £0 road tax are over, and the change caught out plenty of owners who assumed their free status would roll on.
Petrol and Diesel Cars: Higher First-Year Rates
If you’re buying a new petrol or diesel car, the first-year rate – the “showroom tax” built into the price – is where the cost really lands. First-year rates jumped in April 2025 and rose again for 2026/27, and they climb steeply with emissions.
Here are some of the 2026/27 first-year rates to give you a sense of the range:
| CO2 emissions | First-year rate (2026/27) |
|---|---|
| 0 g/km (electric) | £10 |
| 1–50 g/km | £115 |
| 51–75 g/km | £135 |
| 76–90 g/km | £280 |
| 91–100 g/km | £365 |
| 151–170 g/km | £1,410 |
| Over 255 g/km | £5,690 |
A new car emitting more than 255g/km now faces a £5,690 first-year bill, more than double the top rate of a couple of years ago. Diesel cars that don’t meet the RDE2 emissions standard pay one band higher.
From the second year, almost every car drops to the flat £200 standard rate, so it’s in that first year that choosing a lower-emission model saves you the most. You can look up any car on the government’s rate tables or check your band using its registration details.
The Expensive Car Supplement
If you’re buying a higher-end vehicle, watch out for the Expensive Car Supplement, often called the “luxury car tax”. It’s an extra annual charge on top of the standard rate, and for 2026/27 it has risen to £440 a year (up from £425).
It’s payable for five years, starting with the second time the car is taxed after its first registration – so if you buy a car used, you can inherit whatever is left of that five-year period.
The threshold is where it gets more interesting, because it now depends on fuel type:
- Petrol, diesel and hybrid cars: the supplement applies where the list price was over £40,000 when new.
- Fully electric cars: from 1 April 2026 the threshold rose to £50,000, so EVs priced between £40,000 and £50,000 no longer pay it.
That EV change is welcome news, and it applies to electric cars registered from April 2025 onwards, not just brand-new ones. For an EV that would have been caught at £47,000, it’s a saving of £440 a year for five years.
One point to remember across all fuel types: the supplement is based on the manufacturer’s list price including options, so even a few upgrades can tip a car over the threshold.
Older Vehicles Face Changes Too
Older cars haven’t escaped either. For vehicles registered before April 2017, tax is still based on CO2 bands, but the lowest band has changed: cars emitting up to 100g/km, which used to be free, now pay £20 a year.
There’s better news at the other end of the age scale. Qualifying cars built more than 40 years ago fall into the historic vehicle class and pay £0, and from 1 April 2026 that rolling exemption covers vehicles built before 1 January 1986. Not every older vehicle qualifies – it doesn’t normally apply where the vehicle is used commercially – and you still need to apply for the historic tax class rather than assume it applies automatically.
Planned Pay-Per-Mile Charge From 2028
The change worth planning for now affects electric and plug-in hybrid drivers. Announced in the Autumn 2025 Budget, a new Electric Vehicle Excise Duty (eVED) is proposed from April 2028, charging by the mile on top of the standard annual rate.
As set out so far, electric car drivers would pay 3p per mile and plug-in hybrid drivers 1.5p per mile, with the government estimating that an average EV driver covering 8,000 miles a year would pay around £240 extra.
There’s no requirement to fit a tracker. Under the proposal, you’d estimate your mileage when renewing your VED, pay based on that estimate, and reconcile it against your actual mileage later – existing MOT records would normally be used to check it, though newer cars could need separate checks before their first MOT. It’s one to keep an eye on rather than budget for precisely.
A Note for Business Owners
If you provide cars through your company, the tax picture is different, and this is where the numbers can work in your favour.
Company car drivers pay Benefit-in-Kind (BIK) tax based mainly on the car’s list price and emissions. For 2026/27 you can either payroll the benefit or report it under the existing P11D process through your payroll function, with real-time payrolling of company car benefits due to become mandatory from April 2027. Electric vehicles remain heavily favoured here.
The BIK rate for a fully electric company car is just 4% in 2026/27 (up from 3%), against rates that reach up to 37% for higher-emission petrol and diesel models. On top of that, a business buying a qualifying new and unused zero-emission car can currently claim a 100% first-year capital allowance (available until April 2027), while other vehicles fall under the normal writing-down allowances.
Add the option of an EV salary sacrifice scheme, and the way you buy and provide vehicles can make a real difference to the overall cost – an area where a bit of company accounts and planning work usually pays for itself.
How Double Point Can Help
Car tax has become a moving target, and for business owners it sits alongside BIK, capital allowances, VAT and the coming pay-per-mile charge. Getting the vehicle decision right is worth more than it looks.
At Double Point, our chartered accountants help business owners and directors work out the most tax-efficient way to run and provide vehicles, from choosing between electric and conventional cars to structuring a company car or salary sacrifice scheme. We’ll fit it into a wider tax planning approach built around your business.
To talk through what the changes mean for you or your company, book a consultation with us today