Ameer Randolph
Fuel tax is an excise tax imposed on the sale of fuel, and it is usually levied per unit of fuel purchased. In the UK, the tax is charged on most hydrocarbon oils, with the two main categories of road fuel - unleaded petrol and diesel - being charged at a duty of 52.95 pence per litre. This article will explore the current rate of fuel tax in the UK, how it is calculated, and its impact on consumers and government revenue.
| Characteristics | Values |
|---|---|
| Type of tax | Fuel duty, VAT, vehicle excise duty |
| Tax base | Fuel purchases |
| Rate | 52.95 pence per litre for petrol and diesel, 10.18 pence per litre for marked gas oil, 20% VAT |
| Revenue | £24.4 billion in 2025-26 |
| Changes | Frozen since 2011-12, temporarily cut by 5 pence in 2022-23 |
| Future projections | £27.0 billion in 2026-27, £27.3 billion in 2027-28 and 2028-29, then a decrease in 2029-30 |
| Purpose | Revenue for the government, promoting ecological sustainability |
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Fuel duty and VAT
Fuel duty is levied per unit of fuel purchased and is included in the price paid for petrol, diesel, and other fuels used in vehicles or for heating. The rate depends on the type of fuel. The headline rate on standard petrol and diesel is 52.95 pence per litre, and this has been frozen since 2011-12. This rate also applies to biodiesel and bioethanol. The rate on marked gas oil, which is mostly used for off-road diesel in agriculture, rail, non-commercial heating, electricity, and other qualifying purposes, is 10.18 pence per litre.
Excise duty is charged on most hydrocarbon oils, with the two main categories of road fuel - unleaded petrol and diesel - charged at 52.95 pence per litre. When VAT is included, tax represents 49% of the final pump price for petrol and 46% for diesel. Fuel duties are estimated to raise £26.2 billion in 2022/23.
VAT is charged at 20% on both the underlying product price and the duty. You pay different rates on other types of fuel, depending on how they're used. For example, domestic heating fuel is charged at a reduced rate of 5%.
The Office for Budget Responsibility (OBR) has estimated that the cumulative cost of freezing fuel duty rates between 2010/11 and 2021/22 to be around £65 billion. In 2022, the Chancellor, Rishi Sunak, announced a temporary 5p cut in fuel duty for 12 months, forecast to cost £2.4 billion in 2022/23.
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Excise duty
Fuel duty is a significant source of revenue for the UK government. In 2022/23, fuel duties were estimated to raise £26.2 billion, with this figure expected to increase to £27 billion in 2026/27. While fuel duty receipts have remained relatively stable in recent decades, they have fallen as a share of GDP due to the effective tax rate falling in real terms.
The UK's excise duty rates on road fuels are set in cash terms and must be increased in line with inflation to maintain their real value. The rate has been frozen since 2011/12, and a temporary 5 pence cut was introduced in 2022, extended until 2025/26.
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VAT on fuel duty
In the UK, fuel duty is levied per unit of fuel purchased and is included in the price paid for petrol, diesel, and other fuels used in vehicles or for heating. The standard rate of VAT on most fuel is 20%, while a reduced rate of 5% is charged on domestic heating fuel. The rate you pay depends on the type of fuel and how it is used.
The headline rate of fuel duty for standard petrol and diesel is 52.95 pence per litre, which includes a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. This rate also applies to biodiesel and bioethanol. When VAT is included, tax represents 49% of the final pump price for petrol and 46% for diesel. Fuel duties are expected to raise £24.4 billion in 2025-26, equivalent to £850 per household and 0.8% of national income.
The rate for liquefied petroleum gas is 28.88 pence per kilogram, while the rate for natural gas used as fuel in vehicles is 22.57 pence per kilogram. The duty on 'fuel oil' burned in a furnace or used for heating is 9.78 pence per litre. For example, the pump price of a litre of petrol includes the pre-tax price, plus 52.95 pence for fuel duty, plus 20% VAT on the pre-tax price, and an additional 10.59 pence for VAT on the fuel duty amount.
While fuel duty receipts have remained relatively stable in cash terms, they have declined as a proportion of GDP due to the effective tax rate falling in real terms. The main rate of fuel duty was reduced by one penny in 2011 to 57.95 pence per litre and has been frozen since. A temporary 5 pence reduction was implemented from 2022-23, resulting in a projected £2.4 billion loss in revenue for 2022-23.
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Vehicle excise duty
In the UK, fuel duties are levied on purchases of petrol, diesel, and other types of fuel. Excise duty is charged on most hydrocarbon oils, with the two main categories of road fuel—unleaded petrol and diesel—being charged at a rate of 52.95 pence per litre. This rate has been frozen since 2011-12 and includes a temporary 5 pence cut introduced in 2022-23 and extended until 2025-26. The duty on fuel is included in the price paid for petrol, diesel, and other vehicle fuels, and the rate depends on the type of fuel.
Now, onto the topic of Vehicle Excise Duty (VED).
History of Vehicle Excise Duty
A vehicle tax was first introduced in Britain in 1888, with the introduction of locomotive duty and trade cart duty. In 1920, an excise duty specific to motor vehicles was introduced, with the revenue initially being used for road construction. Since 1937, the revenue from VED has been paid into the Consolidated Fund, which is the general fund of the government.
Payment of Vehicle Excise Duty
The registered keeper of a vehicle liable for VED must pay the appropriate amount to license the vehicle for road use. The amount payable may be zero for some vehicles. The Driver and Vehicle Licensing Agency (DVLA) collects and enforces VED across the UK, except in Northern Ireland, where the Driver and Vehicle Agency was responsible until 2014.
VED rates are based on carbon emissions and vehicle prices. For cars registered before March 2001, the excise duty is based on engine size. For vehicles registered between March 2001 and April 2017, charges are based on theoretical CO2 emission rates per kilometre. Cars with a list price of over £40,000 are subject to an additional 'expensive car supplement', which must be paid for the first five annual renewals.
Impact of Vehicle Excise Duty
The introduction of VED has strengthened the incentive to purchase zero-emission cars and ULEVs, contributing to the UK's carbon emissions targets. It is expected to have a negligible impact on small and micro-businesses, with no additional costs for affected car drivers. The average annual VED across all UK motorists is £166, although this figure is expected to decrease to £140 with the new system.
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Taxing road fuels
Fuel duties are levied on purchases of petrol, diesel, and other fuels in the UK. The tax is included in the price paid for fuel and is charged per unit of fuel purchased. The standard rate of fuel duty in the UK is currently 52.95 pence per litre for petrol and diesel, although this rate has been frozen since 2011-12. This rate also applies to biodiesel and bioethanol, while the rate for marked gas oil, which is mostly used for off-road diesel, is 10.18 pence per litre. In addition to the fuel duty, VAT is charged at 20% on the price of the fuel and on the duty.
The UK's fuel duty rates have been controversial, with the Office for Budget Responsibility estimating that freezing fuel duty rates between 2010/11 and 2021/22 cost around £65 billion. In March 2022, the Chancellor announced a temporary 5p cut in fuel duty for 12 months, which is expected to cost £2.4 billion in 2022/23. Despite this, fuel duties are still expected to raise a significant amount of revenue for the government, with an estimated £26.2 billion in 2022/23 and £27.0 billion in 2026/27.
Fuel duties are a significant source of revenue for governments worldwide, and the rates of duty and VAT can vary depending on the country and the type of fuel. For example, in Sweden, the total tax on petrol and diesel, including value-added tax, is different for the two fuels, while in India, fuel pricing varies by state, with central taxes making up about half of the pump price. In some cases, such as in China, the implementation of fuel taxes has been contentious, with concerns about their impact on certain industries or groups.
Fuel taxes are typically imposed on fuels intended for transportation, and the revenue generated can be dedicated to transportation projects or used as general revenue. They can also be used as an ecotax to promote ecological sustainability by reducing pollution and addressing global warming. However, fuel taxes are often considered regressive, and the shift to electric vehicles may lead to a decline in fuel consumption and a subsequent decrease in fuel duty receipts.
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Frequently asked questions
Fuel tax in the UK is levied at a flat rate of 52.95p per litre for petrol and diesel. On top of this, VAT is charged at 20% on the price of the fuel and the duty.
Fuel tax, also known as a petrol, gasoline or gas tax, or as a fuel duty, is an excise tax imposed on the sale of fuel.
Fuel duty is included in the price paid for petrol, diesel, and other fuels used in vehicles or for heating. The rate depends on the type of fuel. For example, diesel for farmers and construction vehicles (known as red diesel) is taxed at a lower rate.
Fuel duties are a significant source of revenue for the UK government. In 2022/23, fuel duties were estimated to raise £26.2 billion.
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