Vehicle Excise Duty (VED) the statutory road tax administered by the DVLA qualifies as a non-VATable government duty, meaning businesses and individuals cannot charge or reclaim VAT on this payment.
Road tax for cars, vans, HGVs, and fleet vehicles functions as a fixed regulatory levy set under the Vehicle Excise and Registration Act 1994, placing it outside the scope of Value Added Tax under HMRC rules.
VAT-registered businesses may recover VAT on ancillary motoring costs such as fuel, repairs, leasing fees, or commercial vehicle acquisitions, but VED itself remains blocked from input-tax recovery.
This guide explains the VAT position, outlines HMRC compliance requirements, and clarifies how VED interacts with business accounting and fleet cost management.
Understanding the Terminology: Road Tax vs. VED
Before we address the core question of VAT on road tax, we must first clarify the terminology. The charge that must be paid annually for a vehicle to use public roads is officially known as Vehicle Excise Duty (VED).
-
Road Tax or Road Fund Licence (RFL) are historical, colloquial terms. While still widely used, the actual “Road Fund” it once paid into was abolished decades ago.
-
Vehicle Excise Duty (VED) is the correct legal term for this tax. It is a levy collected by the Driver and Vehicle Licensing Agency (DVLA) on behalf of the government.
This distinction is crucial because the nature of the levy, a direct government tax determines its VAT status.
Outsource Your Bookkeeping
& Reclaim Your Time
Grow your business while we handle the numbers. Fast, secure, and fully HMRC-compliant bookkeeping services tailored to your needs.
The Definitive Answer: Is There VAT on Road Tax?
The answer is a clear and unequivocal NO.
Vehicle Excise Duty (VED), or road tax, is a specific government tax on owning and operating a vehicle on UK public roads. Taxes, duties, and similar charges levied directly by the government are outside the scope of VAT.
Therefore, when you pay your VED to the DVLA, the payment does not include any VAT element. This principle immediately addresses the core questions:
-
Is there VAT on RFL? No, the historic Road Fund Licence charge does not have VAT applied.
-
Is there VAT on DVLA payments? When referring to the VED payment, no, there is no VAT. However, be aware that some specific services provided by the DVLA, such as the auction of personalised registration plates, do include VAT, as these are seen as a supply of a service.
-
What VAT code is road tax? For accounting purposes, because VED is an ‘out of scope’ payment, meaning it is not subject to VAT at any rate (standard, reduced, or zero), it is typically recorded using the T9 VAT code in common accounting software (like Sage), representing non-VAT transactions.
Can You Claim VAT Back on Road Tax?
Since there is no VAT on road tax (VED) in the first place, it is impossible for a VAT-registered business to claim it back.
The process of reclaiming VAT is only applicable to the ‘input tax’ paid on the supply of goods or services used for the purpose of your taxable business activities. As VED is a government tax and not a ‘supply,’ it falls outside the remit of VAT recovery.
The VAT Treatment of Other Vehicle Expenses
It is vital for UK businesses to understand the difference between VED and other motoring costs, as the VAT treatment can vary significantly:
| Motoring Expense | Does it include VAT? | Can you reclaim the VAT? | Key HMRC Guidance |
| Road Tax (VED/RFL) | No (It is a government duty) | No (Because there is no VAT on road tax) | Out of Scope (T9) |
| Vehicle Insurance | Generally No (It is exempt from VAT, but subject to Insurance Premium Tax (IPT)) | No (Exempt supplies cannot have VAT reclaimed) | Exempt |
| Fuel | Yes, standard rate (20%) | Yes, subject to business use rules (and potentially the fuel scale charge) | HMRC VAT Notice 700/64 |
| Servicing & Repairs | Yes, standard rate (20%) | Yes, for business vehicles subject to normal rules | HMRC VAT Notice 700/64 |
| Leasing a Company Car | Yes, standard rate (20%) | Generally 50% of the VAT can be reclaimed (due to the private use block) | HMRC VAT Notice 700/64 |
A Business Scenario: The Fleet Manager’s Perspective
Imagine a VAT-registered limited company, “Swift Deliveries Ltd.” The company runs a fleet of vans and cars.
-
When the fleet manager pays the VED for their vehicles via the DVLA, they do not receive a VAT receipt. The amount paid is simply the cost of the government duty. There is no VAT on road tax to reclaim.
-
When they take a van for a service, the garage invoice will show a standard 20% VAT charge. The company can reclaim this VAT (input tax) in full, provided the van is used for business purposes.
Understanding this difference is critical for accurate record-keeping and avoiding penalties from HMRC for incorrectly claiming input tax where none exists. Claiming VAT on road tax would be an error.
Outsource Your Bookkeeping
& Reclaim Your Time
Grow your business while we handle the numbers. Fast, secure, and fully HMRC-compliant bookkeeping services tailored to your needs.
The Importance of Correct Accounting and Compliance
As an expert Tax Advisor, I emphasise that even though the VAT position of VED is straightforward, accurate accounting remains paramount. Incorrectly classifying expenses can lead to compliance issues during an HMRC audit.
How to Account for VED Correctly
-
Record as Out of Scope: In your business’s accounting software (e.g., QuickBooks, Xero, Sage), the payment of road tax (VED) should be treated as an Out of Scope or Non-VAT expense. As mentioned, this is often the T9 VAT code.
-
Verify Source Documentation: The payment confirmation from the DVLA (which replaces the old paper RFL disc) is your primary proof of payment. Crucially, this document will not show a VAT breakdown, reinforcing the fact that you cannot claim VAT on road tax.
-
Impact on Profit and Loss: VED is a legitimate, allowable deduction for Corporation Tax or Income Tax purposes, as it is a cost incurred wholly and exclusively for the purposes of the trade. However, this is separate from the VAT position.
What about the List Price Supplement?
The VED system includes a ‘Premium Rate’ or ‘List Price Supplement’ for most cars registered since April 2017 with a list price exceeding £40,000. This additional charge, which lasts for five years, is simply an extra element of the VED duty itself. It is also a government tax, meaning there is no VAT on road tax, even with the supplement applied.
The Bottom Line
To conclude, for any business or individual in the UK, the position on VED is straightforward: there is no VAT on road tax. It is a government duty, entirely “out of scope” for Value Added Tax purposes.
Consequently, UK VAT-registered businesses cannot ask: “Can you claim VAT back on road tax?” as the input tax was never paid.
Maintaining a clear distinction between VAT, which is a consumption tax, and VED, which is a direct government levy, is essential for robust tax compliance.
Always record VED payments correctly in your accounts using the appropriate non-VAT code to ensure you remain compliant with HMRC’s strict regulations.
Disclaimer: The content on AccoBee.co.uk is for informational purposes only and do not constitute tax or financial advice.
We recommend consulting a certified tax professional or the HM Revenue and Customs Dept (HMRC) for accurate guidance. AccoBee.co.uk is not responsible for any decisions made based on the information provided.