Introduction
When buying a new vehicle in the UK, one of the costs you need to factor in is Vehicle Excise Duty (VED), commonly known as car tax or road tax. However, many people are surprised to discover that the amount they pay in the first year can be significantly different from what they'll pay in subsequent years.
This guide explains the key differences between first year and standard car tax rates, why they exist, and how they might affect your vehicle purchase decisions.
The Two-Tier System: An Overview
For vehicles registered on or after April 1, 2017, the UK uses a two-tier car tax system:
- First Year Rate: A one-time payment based primarily on CO2 emissions
- Standard Rate: A flat rate paid annually from the second year onwards
This system was designed to encourage the purchase of lower-emission vehicles while ensuring all drivers contribute to road maintenance in the long term.
First Year Rates Explained
The first year rate is essentially a tax on the environmental impact of your new vehicle. It's calculated based on the official CO2 emissions figure in grams per kilometer (g/km).
Key Features of First Year Rates:
- Emissions-based: The higher the CO2 emissions, the higher the tax
- One-time payment: Paid only once when the vehicle is first registered
- Wide range: Can vary from £0 for zero-emission vehicles to over £2,745 for high-emission vehicles
- Included in "on-the-road" price: Usually included in the advertised price of a new car
- Different rates for diesel: Higher rates for diesel cars that don't meet the latest emissions standards (RDE2)
First Year Rate Table (2024-25):
| CO2 Emissions (g/km) | Petrol & RDE2 Diesel | Non-RDE2 Diesel | Alternative Fuel |
|---|---|---|---|
| 0 | £0 | £0 | £0 |
| 1-50 | £10 | £30 | £0 |
| 51-75 | £30 | £135 | £20 |
| 76-90 | £135 | £175 | £125 |
| 91-100 | £175 | £195 | £165 |
| 101-110 | £195 | £220 | £185 |
| 111-130 | £220 | £270 | £210 |
| 131-150 | £270 | £680 | £260 |
| 151-170 | £680 | £1,095 | £670 |
| 171-190 | £1,095 | £1,650 | £1,085 |
| 191-225 | £1,650 | £2,340 | £1,640 |
| 226-255 | £2,340 | £2,745 | £2,330 |
| Over 255 | £2,745 | £2,745 | £2,735 |
What is RDE2?
RDE2 (Real Driving Emissions Step 2) is a standard that measures a diesel vehicle's nitrogen oxide (NOx) emissions in real-world driving conditions. Diesel cars that meet this standard are taxed at the same rate as petrol cars, while those that don't meet it pay a higher rate.
Standard Rates Explained
After the first year, most vehicles move to a standard rate regardless of their CO2 emissions. This is a flat rate that applies for the lifetime of the vehicle.
Key Features of Standard Rates:
- Flat rate: The same for most vehicles regardless of emissions (with some exceptions)
- Annual payment: Paid every year for as long as you own the vehicle
- Fuel-based differentiation: Different rates for petrol/diesel, electric, and alternative fuel vehicles
- Premium vehicle surcharge: Additional charge for vehicles with a list price over £40,000
Standard Rate Table (2024-25):
| Fuel Type | Annual Rate |
|---|---|
| Petrol or Diesel | £190 |
| Electric | £0 (until April 2025) |
| Alternative Fuel (e.g., hybrids) | £180 |
The Expensive Car Supplement:
For vehicles with a list price over £40,000, an additional charge applies:
- £410 per year for five years (from the second time the vehicle is taxed)
- Currently, zero-emission vehicles (electric cars) are exempt from this supplement, but this will change from April 2025
This means that owners of expensive petrol or diesel cars pay a total of £600 per year (£190 standard rate + £410 supplement) for five years.
Key Differences: First Year vs. Standard Rates
| Feature | First Year Rate | Standard Rate |
|---|---|---|
| Calculation basis | CO2 emissions | Fuel type |
| Rate range | £0 - £2,745 | £0 - £190 |
| When paid | Once, at registration | Annually, from year 2 |
| Environmental incentive | Strong (high emissions = high tax) | Moderate (only differentiates by fuel type) |
| Visibility to buyer | Often hidden in "on-the-road" price | Clearly visible as annual cost |
Why Are the Rates Different?
The two-tier system serves several purposes:
- Environmental incentive: The first year rate provides a strong financial incentive to choose a lower-emission vehicle at the point of purchase.
- Revenue generation: The standard rate ensures all drivers contribute to road maintenance regardless of their vehicle's emissions.
- Simplicity: Having a flat standard rate makes the system easier to administer after the initial purchase.
- Fairness: The system acknowledges that while emissions are important, all vehicles use the road network and should contribute to its upkeep.
Impact on Vehicle Buyers
Understanding the difference between first year and standard rates can significantly impact your vehicle purchase decisions:
For New Car Buyers:
- High-emission vehicles: Be aware that the first year tax can be substantial (up to £2,745) for high-emission vehicles, though this is usually included in the "on-the-road" price.
- Low-emission vehicles: Benefit from lower first year rates, making them more attractive initially.
- Electric vehicles: Currently pay £0 in both first year and standard rates (until April 2025).
- Premium vehicles: Factor in the expensive car supplement (£410 per year for five years) if your vehicle costs over £40,000.
For Used Car Buyers:
- No first year rate: You don't pay the first year rate when buying a used car, as it was already paid by the first owner.
- Standard rate only: You'll pay only the standard rate based on the vehicle's fuel type.
- Expensive car supplement: If buying a premium vehicle less than five years old, check if the expensive car supplement still applies.
Important Changes Coming in 2025
From April 2025, electric vehicles will no longer be exempt from car tax. They will pay the standard rate of £195 per year, and the expensive car supplement will also apply to electric vehicles over £40,000.
Conclusion
The UK's two-tier car tax system balances environmental incentives with the need for sustainable road funding. The first year rate encourages the purchase of lower-emission vehicles, while the standard rate ensures all drivers contribute to road maintenance.
When buying a new vehicle, it's important to consider both the first year tax (usually included in the purchase price) and the standard rate you'll pay annually thereafter. For used vehicles, only the standard rate applies.
With significant changes coming in 2025, particularly for electric vehicle owners, it's important to stay informed about how these changes might affect you. Our car tax calculator can help you determine exactly how much you'll need to pay based on your specific vehicle.