Car tax explained


Share on Twitter Share on Facebook Google plus Email

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 do I have to pay?

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 before 1 March 2001 pay one of two prices, depending on engine size; cars with engines over 1549cc pay more. Emissions on vehicles of this age are not taken into account.

Cars registered between 1 March 2001 and 31 March 2017 are priced on a sliding scale, based entirely on the car’s tailpipe CO2 emissions. The more polluting your car, the more you’ll pay.

Cars registered on or after 1 April 2017 are priced on a sliding scale in the first year based on the tailpipe CO2 emissions, and then pay a flat annual fee of £140 after that. Hybrid and alternative fuel vehicles receive a small discount. In addition, a £310 surcharge is applied to cars with a list price over £40,000 (including optional extras, before discounts) for the first five years.

Which cars are exempt from tax?

You’ll pay no tax if your car falls into any one of the following categories:

  • The vehicle is used by a disabled person
  • The car is parked off the road with a Statutory Off the Road Notice (SORN)
  • It was manufactured before 1 January 1977
  • It was first registered between 1 March 2001 and 31 March 2017 and has CO2 emissions less than 100g/km
  • It was first registered after 1 April 2017, has CO2 emissions of 0g/km, and a list price less than £40,000.

Even if your vehicle does qualify for free car tax, you will need to confirm this by applying for it. In the case of a disability exemption, you’ll need to apply for this separately.

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.

Share with your friends

Multi Car Insurance

Multiple cars? You could save over £355 with Multicar

1st Dec 2016 and 31st May 2017, 1 in 10 customers who provided a best alternative price saved £355

  • Immediate discount Other cars can join at a later date and get their own MultiCar discount. Just tell us about them now.
  • Add friends & family to the policy Perfect for insuring your kids, parents, housemates, or your partner.
  • Combine cars from different addresses Even if family members live away from home, they can still join the MultiCar policy.