You pay for more than just the oil in your tank. Every time you fill up, your money splits into four parts: wholesale fuel, fuel duty, VAT, and the retailer’s margin.
The breakdown of a litre at today’s average
Take 169.4p, the current average price for a litre of unleaded in the UK. Out of that, 52.95p goes to fuel duty. That’s a flat charge per litre, not a percentage of the price. The rate is frozen until the end of 2026, then rising to 55.95p on 1 January 2027 and 57.95p on 1 March 2027.
VAT adds another layer. It’s 20% of the total price, which includes duty. That means the tax is applied after duty is added. For example, if a litre costs a certain amount, VAT is 20% of the total, not just the wholesale cost. This tax-on-tax effect boosts the final price.
The remaining amount covers wholesale fuel and the retailer’s margin. Wholesale fuel costs vary with global oil prices, but the retailer’s share is smaller than most assume. Supermarkets often run thinner margins because they make money elsewhere, think groceries, not just fuel.
Here’s a worked example. If 169.4p is a certain amount, subtract 52.95p for duty. That leaves a remaining sum. VAT is 20% of the total, which is already included in the total. That means a portion of your payment is tax on tax. The rest covers wholesale fuel and the retailer’s margin.
Fuel duty: a flat charge, not a percentage
Fuel duty is a flat pence-per-litre charge. It’s frozen at 52.95p until the end of 2026, then rising to 55.95p on 1 January 2027 and 57.95p on 1 March 2027. The government has made temporary adjustments to ease the cost of living crisis. These changes are not permanent and are reviewed at Budgets.
This flat rate means duty takes a bigger share of the price when oil is cheap. If oil prices fall, the wholesale cost per litre drops, but duty stays the same. That makes tax a larger portion of the final price. Conversely, when oil is expensive, tax becomes a smaller share.
The duty rate has remained frozen since 2022, but the government has made temporary cuts to ease the cost of living crisis. These measures are set to expire. If oil prices drop further, the tax share could rise again, pushing prices up.
VAT: tax on top of tax
VAT is 20% of the total price, not just the wholesale cost. This means the tax is applied after duty is added. If a litre of fuel costs a certain amount, VAT is 20% of the total, which is already included in the total.
This tax-on-tax effect is why the final price is higher than it would be if VAT was applied only to the wholesale cost. It’s a hidden cost that affects every litre you buy.
The structure of VAT on fuel is unique compared to other goods. For example, if you buy an item, VAT is 20% of the cost, not 20% of the cost after any other taxes. But with fuel, VAT is calculated on the full price, including duty. This makes the tax impact more pronounced.
The retailer’s cut: smaller than you think
The retailer’s margin is often overlooked. It’s smaller than most people assume, especially at supermarkets. These retailers can afford to run thinner margins because they generate revenue elsewhere.
A typical independent station might have a margin that is roughly in line with industry estimates. Supermarkets, with their scale and other income streams, can operate on margins that are roughly lower than those of independent stations. That’s why you sometimes see fuel prices at supermarkets that are slightly lower than elsewhere.
But this doesn’t mean supermarkets are giving fuel away. Their strategy is to attract customers with low fuel prices, who then spend money elsewhere in the store.
Independent stations, however, often have higher margins because they can’t afford to lose money on fuel. They may also charge more for convenience services like car washes or snacks.
Why the tax share of the price changes
When oil prices fall, the tax share of the final price rises. This is because duty is a flat charge per litre. If oil is cheap, the wholesale cost per litre is low, so tax becomes a bigger portion of the total.
For example, when oil prices are low, the tax alone makes up a larger portion of the final price. This explains why fuel prices can jump when oil prices fall. The government’s flat tax rate means it’s not a direct percentage of the price.
This explains why fuel prices can change in ways that might seem counterintuitive.
Common questions
What’s the current fuel duty rate?
The rate is 52.95p per litre. It’s frozen until the end of 2026, then rising to 55.95p on 1 January 2027 and 57.95p on 1 March 2027.
How does VAT work on fuel prices?
VAT is 20% of the total price, including duty. This means the tax is applied after duty is added.
Why do supermarkets charge less for fuel?
Supermarkets can afford lower margins because they make money elsewhere.
Does the tax share change with oil prices?
Yes. When oil is cheap, tax takes a bigger share of the price. When oil is expensive, tax becomes a smaller share.
Where does My Fuel Prices get its data?
We pull live data from over 10,000 stations across the UK. You can see where we get it here.
For more on fuel price trends, check our trends page. To understand why prices rise, read this guide.