Car tax explained

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Car tax rules have changed so what does this mean for you and your motor?

Whether you know it as car tax, road tax, or by its actual name, Vehicle Excise Duty (VED), paying tax is a necessary part of owning a vehicle - just like taking out car insurance or getting a regular service.

But what is it, how much does it cost, and what documents do you need to tax your car? We’re here to explain.

What is car tax?

Every driver is obliged to purchase car tax every year. The money this raises for the government is used to cover the cost of highway maintenance, upkeep and safety improvements. It’s designed to ensure road users are the ones covering the cost of the roads they use, but the tax doesn't pay for roads directly and instead it gets put into central government funds. 

This will change in 2020, with government plans to pay VED directly into the funds that pay for road improvement. 

How much will it cost to tax my vehicle?

The cost of vehicle tax varies. Some cars are exempt (and pay nothing), while others can be charged several hundred pounds per year.

The age of your car, and how polluting it is, are the two primary factors in determining the price. Penalties on more polluting cars are there to encourage ownership of less-polluting vehicles, like smaller cars and hybrids.

Cars registered from 1 March 2001 to 31 March 2017

Emissions-based vehicle taxation first came into place in 2001. When changes came into affect April 2017, all cars registered previously has their tax frozen. 

New cars

If you buy a new car, the cost of road tax follows the system introduced on 1 April 2017. The first 12 months is based on emissions, and the following years are a flat rate. The first year of tax is included in the on-the-road price, but the second year is what you'll pay out of pocket. 

To find out how much tax you'll pay, visit gov.uk.

Car tax changes made in April 2018

In the 2017 Autumn Budget, HM Treasury revealed a new tier of taxation for new diesel cars that don’t meet the latest Euro 6 emissions legislation.

According to the Treasury this will affect around two million new cars, but the cost will vary depending on whether you have a ‘cleaner’ diesel car or an older one.

If your new car doesn’t comply to Euro 6 emissions, your tax will increase. This means that if you car has more than 0g/km carbon emissions and/or cost more than £40,000, you’ll have to pay tax.

What documents do I need to buy car tax?

The documents you need to tax a car vary depending on whether the car is brand new or not. Either way, you won’t need to wait for a tax disc to arrive in the post; these have been abolished, and police use automatic number plate recognition to search the tax database and check you have your tax in place.

If you’re renewing car tax, or taxing a used car for the first time

You can purchase or renew car tax online or over the phone if you have a copy of the logbook in your name, a reminder letter from the DVLA, or the ‘new keeper supplement’ (green slip). You’ll need to provide a few details from the slip.

The DVLA then instigates a search of various official databases to ensure that the car has a valid MOT and insurance in place. If the car doesn’t have either of these, you won’t be able to buy tax. Speak to your car insurer at least the day before, and they can ensure the database is updated with your new car’s details.

There’s no ‘grace period’ in which you can arrange tax after buying a used car, so you should have car tax in place before driving away. Any reputable second hand car dealer should offer to help arrange your tax.

If you’re renewing your tax in person at the Post Office, you’ll need to have a copy of the logbook (V5C) in your name (or reminder letter from the DVLA); a copy of your insurance certificate; and a copy of your MOT certificate. These requirements mean you won’t be able to tax a second hand car for the first time at the Post Office.

The MOT requirements are removed if the car is less than three years old.

If you’re taxing a brand new car for the first time

Your car dealer will usually arrange car tax for you. The ‘on the road’ price usually includes the cost of the first year’s car tax and new registration fee, so you won’t have to pay these separately. The dealer will supply the DVLA with the information they need, including proof of your name and address.

After receiving the application, the DVLA will search the insurance database to check that cover is in place.

How to pay for car tax

You can pay for car tax in one of three ways:

  • Annual lump sum
  • Six-monthly lump sum
  • Monthly instalments via direct debit

The cheapest way to pay is in a lump sum, although you may prefer the convenience of paying monthly – especially if you’re not planning on keeping the car for the full 12 months.

If you cancel your direct debit or miss payments, this can lead to the cancellation of your car tax, so it’s vital that this doesn’t happen.

Penalties and implications of driving without tax

The penalties for driving without car tax depend on who catches you. Car owners face an £80 fine (reduced by half if paid within 28 days).

This could increase to up to £1,000 (plus court fees) if the case goes to court. If you’re stopped by the police and found to have no car tax, you could be issued with an instant fixed penalty notice of up to £1,000.

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