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


New tax rules incentivise EV ownership

We help you figure out how much Vehicle Excise Duty you’ll be paying on your new car, whether it’s petrol, diesel, hybrid or electric

How much do you have to pay to tax your car? From today, 1 April, the amount could change because the government has overhauled the Vehicle Excise Duty system to encourage buyers to choose zero- and low-emission vehicles. 

How much you’ll pay depends on what kind of car you have, how old it is, and how you want to pay. 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 UK public roads and is 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 the UK’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 the UK’s road system. This new system was implemented by Rishi Sunak in his 2020 budget, but scheduled road works are likely to be pushed back as a result of the coronavirus outbreak.

The 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.

Changes to system in April mean significant differences for new car buyers.

How VED has changed from April 2020

The changes coming into force as of April 2020 were drawn up as a means of enhancing the appeal of electric vehicle ownership.

The government has uprated VED in line with the retail prices index (RPI) for cars, vans, motorcycles and motorcycle trade licences, but the biggest change, and the one that will be felt most by motorists and traders, is the switch from using NEDC emissions testing as the basis for the various tax band tiers to the new WLTP system.

This new method is said to deliver more realistic readings for a vehicle’s fuel consumption, emissions output and driving range, and will result in vehicles moving up a band and becoming, on average, £5 more expensive to tax annually.

On 6 April, benefit-in-kind car tax will be removed for electric vehicles, as part of a move to incentivise fleet managers and company car drivers to choose zero-emission models.

Further incentive comes in the form of the removal of the £320 ‘expensive car tax’ for electric cars costing more than £40,000, which means anyone buying a new electric car from 1 April will save £320 per year for years two to six of ownership – a total saving of £1600.

The exemption is set to be in place until 31 March 2025 and ongoing ‘expensive car’ payments for cars bought before 1 April 2020 will be scrapped.

Elsewhere, diesel cars that don’t meet the latest RDE-2 emissions standards will be taxed at higher rates than their petrol equivalents, but a new flat rate of £150 for purely combustion-engined cars registered after 1 April 2017 will come into effect in April 2021. A flat rate of £140 will be applied to hybrids registered after this date. 

The old system will still apply to vehicles registered before 1 April 2017. 

See some examples of these changes at the end of this article.

OLDER VEHICLES

If your vehicle was registered before 1 March 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 between 1 March 2001 and 1 April 2017, 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. The table below shows the prices for six- and 12-month cycles and 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. 

*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. You can see further details here.

Petrol, diesel and 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.

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, you don’t have to pay anything. The following are exempt from car tax, and have been since before the changes took place:

• Vehicles used by a disabled person

• Vehicles registered before 1 January 1980

• 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.

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.

Some examples using the new system: 

Hyundai Ioniq Electric

Price when new: £29,450, CO2 emissions: 0g/km

First year tax rate after 1st April 2020: £0

Tax rate after first year of ownership: £0

Tax cost across first three years: £0

Tesla Model X Performance

 

Price when new: £100,400, CO2 emissions: 0g/km

First year tax rate after 1st April 2020: £0

Tax rate after first year of ownership: £0, plus £0 ‘expensive car’ fee

Tax cost across first three years: £0

Mercedes-Benz E 300 de AMG Line

Price when new: £53,354.99, CO2 emissions: 40g/km

First year tax rate after 1st April 2020: £0

Tax rate after first year of ownership: £320 (including £310 Premium fee)

Tax across first three years: £660

Ford Mustang 5.0 V8 GT Convertible 

Price when new £47,185, CO2 emissions: 274g/km

First year tax rate after 1st April 2020: £2175

Tax rate after first year of ownership: £560

Tax across first three years: £3295

 

Aston Martin DBS Superleggera

 

Price when new: £225,000, CO2 emissions: 290g/km

First year tax rate after 1st April 2017: £2175

Tax rate after first year of ownership: £890 (including £310 ‘expensive car’ tax)

Tax across first three years: £3955

READ MORE

Budget 2020: How the government’s plans will affect motorists​

Government estimates 634,000 untaxed vehicles on UK roads​

Analysis: will car sharing replace vehicle ownership?​

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