Car tax: everything you need to know about Vehicle Excise Duty

Dec 20th

How much do you have to pay to tax your car?

The short answer is, it depends on what kind of car you have, how old it is, and how you want to pay. The long answer is considerably more complicated, but this article should help you make sense of it all.

Vehicle Excise Duty, known as VED, is a tax levied by the government on every vehicle on British public roads, and collected by the Driver and Vehicle Licensing Agency (DVLA). It’s a major source of revenue for the Government, totalling billions of pounds each year, which goes into the central coffers of the exchequer. 

Although VED is often referred to as road tax, this is misleading – the tax isn’t on the road, it’s on the vehicles that use it. Road tax was abolished in the 1930s, and the cost of maintaining Britain’s roads is currently covered by general taxation, not specifically VED.

However, in his 2015 budget, then-chancellor George Osborne announced that a new road fund would be set up, whereby all funds raised through VED will go into the building and upkeep of Britain’s road system. This new system is due to be introduced before 2020.

The current VED system, based on vehicle emissions, was introduced in 2001 as part of a push to reduce pollutants being released into the atmosphere. Vehicles emitting more pollutants cost more to tax, as part of efforts to persuade drivers to consider buying cleaner vehicles.

The system changes in 2017, and you can read more about that further down the page.

EXEMPT VEHICLES 

From a financial point of view, the best position to be in is to be exempt from paying any VED, and if you’re in any of the following categories, then congratulations – you don’t have to pay anything.

• Vehicles used by a disabled person

• Vehicles registered before 1 January, 1976

• Electric vehicles

• Steam vehicles

• Mobility scooters

• Mowers

• Agricultural, horticultural and farming vehicles

If you own a car but you don’t drive it on public roads then you’re also exempt, although you’ll have to declare it to the DVLA. This is called a Statutory Off Road Notification, or SORN, and you can declare it here. Be aware that if you don’t let the DVLA know that you want the car registered as off the roads, you’ll be liable for road tax even if the car doesn’t move. Conversely, if you want to take the vehicle back onto public roads, you’ll need to pay the appropriate amount of VED first.

Unless you’re in the above categories you’ll have to pay. Well, almost – if your car is particularly green and emits less than 100 grams of carbon dioxide (CO2) per kilometre (g/km), then it is also exempt. But everyone else will need to cough up. 

How much you pay will depend on how old your car is. Older cars pay a rate that depends on their engine size, while the cost for newer cars depends on what kind of fuel they use and how much CO2 they emit.

OLDER VEHICLES

If your vehicle was registered before March 1, 2001, then the engine size in cubic centimetres (cc) is what’s important.

• Cars with engines equal to or smaller in capacity than 1549cc (roughly equivalent to 1.5-litres) have to pay £145 a year, assuming they pay up front for 12 months.

• Cars with engines larger than 1549cc will have to pay £235 a year.

The exact amount due can vary slightly, depending on whether you pay for six months or 12 months, and whether you pay all at once or in instalments. You can see a full breakdown of the charges by going to the DVLA website.

NEW VEHICLES

If your car is newer, and was registered on or after March 1, 2001, then it’s the emissions that you need to think about.

Petrol and diesel-powered cars are the most commonly taxed vehicles, and they’re categorised by bands that are determined by their CO2 emissions. Prices vary slightly depending on how you pay – in one go, or in instalments. We’ve listed the prices for paying for 12 months at once, but you can see the full breakdown by going to the Government’s VED website.

Petrol and diesel vehicles

*Includes cars that have a CO2 figure higher than 225g/km, but were registered before 23 March, 2006.

Alternative fuel vehicles

If your car is powered by an alternative fuelling system, then the charges are slightly different, but based on the same premise. Alternative fuel cars include hybrids and vehicles that run on biofuel or a variant of gas, such as LPG or CNG.

Once again the costs vary slightly depending on how you want to pay. The below prices are for 12 months VED paid up front and the full breakdown can be found here.

*Includes cars that have a CO2 figure higher than 225g/km, but were registered before 23 March, 2006.

TAXING FOR THE FIRST TIME

If your car is brand new and you’re taxing it for the first time, then the costs are slightly different again. The below prices are only applicable the first time a car is taxed – after that, it follows the tables above.

The system rewards drivers of new, low emitting cars with a lower-than-usual payment for the first year, but it smacks high-emitting vehicles with a fairly stiff initial charge.

The prices are for 12 months and are payable only in a single payment. A few bands – E, F and G for petrol, diesel and alternative fuel cars – qualify for six month payments, but the others do not. You can see further details here.

Petrol and diesel vehicles, first year only

Alternative fuel vehicles, first year only

Goods vehicles and motorbikes have their own VED system, which you can find more about here.

PAYMENT

Once you’ve figured out what you owe, you can pay your VED in a variety of ways.

The simplest method is online at https://www.gov.uk/vehicle-tax, using a credit or debit card. You’ll also need one or more of the following documents to hand:

• The V11 reminder letter that was sent to you when your existing tax was running out

• The car’s V5C registration document, which must be in your name

• The V5C/2 new keeper supplement if you’ve just bought the car

• The ‘last chance’ warning letter sent to you if you’re about to end up on the wrong side of the law for not either paying or declaring a SORN

If you’d rather use more traditional methods, you can pay over the phone by calling 0300 123 4321. There are charges for this call, which you can read about here.

You can also pay at any Post Office that can process vehicle tax. You’ll need to bring one of the following:

• The V11 reminder letter that was sent to you when your existing tax was running out

• The car’s V5C registration document, which must be in your name

• The V5C/2 new keeper supplement if you’ve just bought the car

You may also need your MOT test certificate, valid for the start of the new tax period, and a valid Reduced Pollution Certificate if the vehicle has been modified to cut its emissions. In Northern Ireland, you’ll need to bring your insurance certificate or cover note.

THINGS TO NOTE

Unlike in the past, you don’t need to wait for a tax disc to be sent for display in the vehicle’s window – the tax disc system was abolished in 2014. 

It’s important to note that VED no longer transfers to a new owner when you sell or buy a car – the new owner will need to tax the car afresh, and they’ll need to do so before they drive the car.

THE FUTURE

So, that’s the way things are at the moment. But in 2017, the VED rules change rather dramatically. The 2015 budget announced that cars bought from April 1, 2017 will be subject to different costs.

Cars already on the road won’t be affected, just new cars, but the changes are significant. The current first year rate system gets a complete overhaul, and only zero-emissions cars will be exempt. Owners of higher-emitting new cars will pay a serious premium compared to the current system, with a first year charge of up to £2,000.

After the first year, all cars will be subject to the same standard rate of £140 per year, no matter what the emissions (zero-emissions cars excepted). However, cars that cost more than £40,000 new will have a £310 premium added to that standard rate for five years, taking the annual cost after the first year to £450.

The new first year rate table looks like this:

If you’re buying a new car in 2017, the new VED system is one to study carefully, because the impact of tax on its running costs could be substantial.

Phill Tromans

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