Every time you fill up your car in the UK, more than half of what you pay goes straight to the government. Fuel duty and VAT together make up a substantial portion of the pump price, yet most drivers have little idea how the breakdown works. This guide explains exactly what you are paying for, how fuel duty is set, and how the running costs of petrol, diesel, and electric vehicles compare in 2026.
What Is Fuel Duty?
Fuel duty is a flat tax charged per litre of fuel sold in the UK. Unlike VAT (which is a percentage), fuel duty is a fixed amount that does not change with the price of oil or the cost of refining. The government sets the rate, and it applies equally to petrol and diesel.
The current rate is 52.95 pence per litre, reflecting the 5p temporary cut introduced in March 2022 that has been extended through subsequent budgets. Before the cut, the rate was 57.95p per litre, which itself had been frozen since 2011.
How the Pump Price Breaks Down
When you see a price on the forecourt, it is made up of four components. Here is a typical breakdown for a litre of unleaded petrol at 142p:
| Component | Amount (pence) | Share |
|---|---|---|
| Fuel duty | 52.95p | 37% |
| VAT (20%) | 23.67p | 17% |
| Wholesale cost | ~55p | 39% |
| Retailer margin | ~10p | 7% |
Crucially, VAT is charged on the total price including the duty. This means you are paying tax on top of tax. The combined tax burden (duty plus VAT) accounts for roughly 54% of the pump price.
Fuel Duty Rates for Different Fuel Types
| Fuel Type | Duty Rate (per litre) | Notes |
|---|---|---|
| Unleaded petrol | 52.95p | Standard road fuel |
| Diesel (DERV) | 52.95p | Same rate as petrol |
| Red diesel (rebated) | 11.14p | Agriculture, horticulture, rail only |
| LPG | 28.88p per kg | Lower rate, fewer filling stations |
| Natural gas (road fuel) | 24.70p per kg | Commercial fleets |
Petrol vs Diesel vs Electric: Running Costs Compared
The cost per mile varies dramatically depending on your fuel type and how you charge or refuel. Here is a realistic comparison based on 2026 average prices:
| Vehicle Type | Efficiency | Cost per Mile | Annual Cost (10,000 miles) |
|---|---|---|---|
| Petrol (avg car) | 40 mpg | ~16p | £1,600 |
| Diesel (avg car) | 50 mpg | ~13p | £1,300 |
| EV (home charging) | 3.5 mi/kWh | ~5p | £500 |
| EV (public rapid) | 3.5 mi/kWh | ~14p | £1,400 |
Home charging on a standard tariff (around 18p/kWh) gives EVs a massive advantage. Public rapid chargers at 50p/kWh or more narrow the gap considerably, but EVs still edge ahead of petrol in most scenarios. The biggest saving comes from off-peak or EV-specific tariffs, where rates can drop to 7-8p/kWh.
The Hidden Cost: Road Tax Changes for EVs
From April 2025, electric vehicles became subject to Vehicle Excise Duty (road tax) for the first time. New EVs pay the lowest first-year rate, then the standard flat rate of £190 per year from year two. EVs priced over £40,000 also pay the expensive car supplement of £410 for years two through six, bringing the annual total to £600. This does not change the fuel cost advantage, but it narrows the overall running cost gap.
Business Mileage and Fuel Allowances
If you use your personal vehicle for business, HMRC's approved mileage rates let you claim tax-free reimbursement:
- Cars and vans: 45p per mile for the first 10,000 miles, then 25p per mile
- Motorcycles: 24p per mile
- Bicycles: 20p per mile
These rates are designed to cover fuel, wear, insurance, and depreciation. If your employer pays less than these rates, you can claim tax relief on the difference.
Tips for Reducing Fuel Costs
- Use price comparison apps - PetrolPrices and similar services show the cheapest stations near you. Supermarket forecourts are typically 3-5p cheaper per litre.
- Drive smoothly - Aggressive acceleration and late braking can increase fuel consumption by 15-30%.
- Check tyre pressure - Under-inflated tyres increase rolling resistance and can add 3% to fuel costs.
- Remove excess weight - Roof boxes and heavy loads reduce aerodynamic efficiency and increase consumption.
- Consider an EV - If you have off-street parking and can charge at home, the per-mile savings are substantial.
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