Vehicle Excise Duty (Car Tax) Explained


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By Crispin Bateman

on Friday 23 August 2019


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Contents

What is vehicle tax?

Legal requirements

What is road tax used for?

Do I need to pay road tax?

How much does road tax cost?

How to tax a car

How to check vehicle tax

Transferring car tax

Help with car ownership

What is vehicle tax?

There are so many names for the UK’s Vehicle Excise Duty that it seems no one really knows what call it! VED is the official name for it, but it goes by ‘car tax’, ‘road tax’. ‘vehicle tax’, ‘vehicle road tax’ and more. No matter the name though, vehicle excise duty is a fee that can be paid annually, six monthly or monthly and is a legal requirement if you want to have your car on the road in the UK. Not having up-to-date road tax means a fine that can be as high as £2,500 in some instances (in addition to any tax due), so it’s worth paying!

The three legal requirements for vehicles in the UK

Vehicle excise duty is one of three things you need for your car to be legal on the road in the UK. The others are a valid MOT (which lasts a year) and up-to-date car insurance.

In the past there has been some question as to what order you should do these in – questions arise such as ‘can I drive to an MOT without insuring my car?’ or ‘do I need tax to get an MOT?’. It can seem a little like a chicken-and-egg puzzle, not knowing which to do first to get the right result.

The reality is, thankfully, quite simple and forgiving:

  • Each of the three can be obtained without having the other two and in any order.

  • If you are driving to an MOT without VED, you will need to pre-book the MOT so if stopped you can prove that was your destination.

  • Insurance must be obtained before driving in all cases.

  • VED can be obtained online easily with the vehicle documentation (V5C) and without needing an MOT or insurance.

If you buy a used car with no MOT and need to drive it home, it is reasonable to get insurance first (before driving away), sort the tax once you get home and book an MOT for the following day. An ideal sequence, however, would be to put the insurance in place, pay the tax online immediately and drive to an MOT garage as the first port of call which, with all the modern advantages of smartphones and the internet, is perfectly possible.

Read more: The consequences of driving without insurance

What is road tax used for?

Why do we pay vehicle tax? A reasonable question!

First of all, it is important to understand that vehicle excise duty is a tax on the vehicle, not (as many believe) a payment to use the road. Cyclists may use the road, for example, but they do not have to pay any sort of duty to do so.

VED is far more a tax on your car emissions than it is about using the road (which is also why electric vehicles get a good deal!), so there’s no reason to complain to cyclists that they should be paying it too!

But where does vehicle tax go? The answer is not ‘the road’ – actually, roads are paid for by local authorities, with your council tax!

Vehicle excise duty goes to the consolidated fund (the same place as income tax) and is then part of the great pool of money that the government controls. It is spent on welfare, education, government-backed projects and a whole host of other things that you may or may not agree with!

You have to pay vehicle excise duty to use a car though, so whether you agree with how it is used or not, you’re stuck with it.

Do I need to pay tax on my car?

Unless your car is a zero-emission car (electric vehicles), then the answer is ‘yes’.

It’s important to note that even if you leave your car parked at the side of the road and never drive it, you still have to pay the duty. Only by taking the car physically away from the road (into a garage or on to private land) and then applying for a statutory off-road notification (SORN) can you become exempt from the tax. For more information on SORN, please read our in-depth article on the matter.

How much is the vehicle tax on a car?

New rules in relation to car tax were introduced after 1st April 2017. Now, more than two years in, these rules will apply to all new cars and a growing number of used cars on the market – but there are plenty of cars around that are older than two years and they will still use the previous (and more complicated) tax system –  detailed at the end of this section.

The first year tax rate

Cars have a special, increased tax rate for their first year. This is where emissions play the largest part. To simplify the system, all cars pay a standard rate from year 2 onwards based on their fuel type rather than being broken down by emissions.

When buying or leasing a new car, many dealers offer to pay the first year of tax for you – this is definitely worth appreciating as it could be a saving of hundreds or even thousands of pounds.

Note: The old pre-April 2017 car tax rules also had a first year tax rate, but this is ignored in this article as it is no longer relevant; a car cannot have been registered more than two years ago and still be liable for its first year of VED!

First year car tax rates from April 2019 (based on CO2 emissions):

CO2 Emissions

First year rate for diesel and petrol cars

First year rate for diesel cars that do not comply with RDE2 emissions testing     

First year rate for alternative fuel cars (hybrid, LPG, CNG, biofuel)

0

£0

£0

£0

1 to 50 g/km

£10

£25

£0

51 to 75 g/km

£25

£110

£15

76 to 90 g/km

£110

£130

£100

91 to 100 g/km

£130

£150

£120

101 to 110 g/km

£150

£170

£140

111 to 130 g/km

£170

£210

£160

131 to 150 g/km

£210

£530

£200

151 to 170 g/km

£530

£855

£520

171 to 190 g/km

£855

£1,280

£845

191 to 225 g/km

£1,280

£1,815

£1,270

226 to 255 g/km

£1,815

£2,135

£1,805

Over 225 g/km

£2,135

£2,135

£2,125

The standard rate

The standard rate applies from the second year onward. It is £145 per year for petrol and diesel cars, and £135 per year for alternative fuel cars and hybrid cars (including plug-in hybrid vehicles or PHEVs).

The electric vehicle (EV) exemption

Barring the £40,000 rule explained below, electric vehicles are completely exempt from vehicle excise duty.

The £40,000 rule

If your car has a list price of more than £40,000 then there is an additional £320 per year extra charge for the first five years (a total of £1,600 extra).

Importantly, this includes electric vehicles even though they are otherwise exempt.

The pre-April 2017 car tax rates

Under the old rules, there were vehicle tax bands, based on the CO2 emissions of the car. As the vehicle excise duty changes in line with inflation, the following chart details the petrol and diesel cars tax rates for 2019 but future years may see an increase.

Alternative fuel cars are entitled to a £10 discount on the standard petrol or diesel car tax rate.

To know what tax band your car is, simply check against the emissions on the chart.

Vehicle tax amount for vehicles registered before April 2017:

Car tax band

CO2 emissions

Annual vehicle excise duty

A

Up to 100 g/km 

£0

B

101 to 110 g/km

£20

C

111 to 120 g/km

£30

D

121 to 130 g/km

£125

E

131 to 140 g/km

£145

F

141 to 150 g/km

£160

G

151 to 165 g/km

£200

H

166 to 175 g/km

£235

I

176 to 185 g/km

£260

J

186 to 200 g/km

£200

K

201 to 225 g/km

£325

L

226 to 255 g/km

£555

M

Over 225 g/km

£570

How to tax a car

Taxing a car is very easy, assuming you own it and have the V5C or ‘log book’. It can be paid annually, in six month amounts or as a monthly Direct Debit set up online from the gov.uk website here: https://www.gov.uk/vehicle-tax.

If you prefer, you can visit your local post office and pay over the counter there, where you will also be able to ask any questions you may still have regarding vehicle excise duty.

Opting to pay by Direct Debit is usually best – it means that you can easily budget your car tax payment into your monthly budget and there’s no chance you’ll forget to renew your tax the following year.

How to check vehicle tax

If you need to see if your car is taxed you can do that on the gov.uk website too: https://www.gov.uk/check-vehicle-tax.

Remember, checking vehicle excise duty is easy, and setting up a new road tax payment takes minutes, so there’s no real excuse for not doing so. The police regularly set up checks to make sure drivers are not illegally on the road so don’t run the risk!

Transferring tax when you buy or sell a used car

In the past, any future tax that was paid on a vehicle would transfer to a new owner when the car was sold. With the dissolution of the old tax disc system, that’s no longer the case and the owner is expected to pay car tax from the moment he or she buys the car.

If you are selling a car and there is outstanding tax paid on it, then you will get a refund provided you have notified the DVLA of the sale. However, you will only be refunded for full calendar months remaining, so if you see your car in the first couple of weeks of a month, you will end up paying the tax until the end of that month.

Help with car ownership with Compare UK Quotes

Our library of informative pages at Compare UK Quotes is extensive! For advice on car insurance, getting car finance or reducing car running costs (plus so much more), why not read our articles?


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