Lifestyle Guides

Car tax explained

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?

Drivers must buy car tax every year. The money this raises is paid directly into the central government fund, which is used for projects that benefit everyone – including road work and maintenance.

How much is my car tax?

The price of car tax varies with the age and how polluting it is being the two primary factors in determining your car tax banding.

Some cars, such as electric vehicles (EVs) and certain classics, are exempt (and pay nothing), while others can be charged several hundred pounds per year.

Penalties on more polluting cars are there to encourage ownership of less polluting vehicles, like smaller cars, hybrids and EVs.

The cost of road tax  also depends on when the car was registered:

  • Cars more than 40 years old are exempt
  • Before 1 March 2001: taxed on engine size
  • Between 1 March 2001 and 1 April 2017: taxed on the car's official CO2 emissions
  • On or after 1 April 2017: just the first year rate is based on CO2

Cars registered from 1 March 2001 to 31 March 2017

Emissions-based vehicle taxation first came into place in 2001. When changes came into effect in April 2017, all cars registered previously had 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. 

In 2019, VED increased in line with inflation via the Retail Price Index (RPI). To calculate road tax and find out how much tax you'll pay, visit gov.uk.

Diesel car tax changes 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.

The cost varies depending on whether you have a ‘cleaner’ diesel car or an older one.

New cars that don’t comply to Euro 6 emissions see a tax increase. Cars with more than 0g/km carbon emissions and/or cost more than £40,000 are also taxable.

What do I need to tax my car?

Since tax discs were abolished in 2014, it can be difficult to remember when your tax is due. Some garages offer a yearly reminder service when you get a MOT done so it’s a good indication that your tax is probably due too.

You can also use the online DVLA road tax check service – you’ll need the car registration to find out if there’s valid cover in place.

The documents you need to tax a car vary depending on whether the car is brand new or not.

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

You can buy 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 will then search all the 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 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 take:

  • A copy of the logbook (V5C) in your name (or reminder letter from the DVLA)
  • A copy of your insurance certificate
  • 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 looking to cancel road tax

You can tell the DVLA to cancel your vehicle tax if:

The DVLA will refund tax for any full months you’ve paid for and not used.

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.

Car tax payment

You can buy 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 this doesn’t happen.

Driving without tax

Car owners face an £80 fine (reduced by half if paid within 28 days) if caught driving without tax - this comes from the DVLA so you won't get any points on your licence. They do, however, have the power to clamp your vehicle until you pay, and the fine could increase to up to £1,000 (plus court fees) if the case goes to court.

Police use Automatic Number Plate Recognition technology to check if a car is taxed; if you're caught driving with tax by the police you could be issued with an instant fixed penalty notice of up to £1,000.

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