A Complete Guide to UK Car Tax – Car Tax Explained

Wooden blocks showing the word 'tax' and a wooden green car

It costs us more than £5.6 BILLION a year – but what is car tax?

Along with fuel and insurance, car tax – also known as Vehicle Excise Duty (VED) – is another cost which you will have to account for when buying or leasing a new vehicle – and while there are some examples of tax exempt cars and vans, the vast majority of us will have to fork out for it on an annual basis.

Here is everything you need to know about car tax:

What is UK car tax, and why do we pay it?

Essentially, the tax we pay on our cars allows us to drive (and park) them on UK roads – your annual cost will depend on how much CO2 your car emits.

Contrary to popular belief, the tax we pay on our cars does not go specifically towards maintaining the roads that they are driven on. It’s impossible to say exactly where the money from vehicle tax is spent, but we do know that it is distributed in a similar way to income tax and that it eventually goes towards the general upkeep of the country.

How much is my car tax?

As mentioned previously, the amount you pay to tax your vehicle will depend on how much CO2 it emits – in other words, how good it is for the environment.

Vehicle Excise Duty (VED) is also calculated with consideration for when your car was first registered. For example, if your car was registered…

  • After April 1, 2017 – your VED will be determined by the car’s fuel type and new list price
  • March 1, 2001 - March 31, 2017 – your fuel type and CO2 emissions decide your road tax
  • Before March 1, 2001 – vehicles with an engine size up to 1549cc pay a flat rate; larger engines pay more

Note: An additional charge of £320 will be applied to vehicles with a new list price that exceeds £40,000 for the first 5 ‘standard years’ (starting from the second time that the vehicle is taxed).

How to get cheap UK car tax

If you’ve come here looking for ways to get cheap car tax on your 8-litre, fuel guzzling supercar then you’re out of luck – the only way to reduce your tax rate is to get a car with cheap road tax.

Believe it or not, the best way to limit the amount of VED that you pay on your car is by buying one which was registered before April 2017 – law changes implemented after this date saw new cars which previously cost £20 a year to tax begin to demand more than £150.

Low-emission cars like the Volkswagen Up!, Vauxhall Astra ecoFLEX and Ford Fiesta Ecoboost all require you to pay a maximum of £30 a year in vehicle tax, while all pure electric vehicles are exempt from paying road tax.

Is car tax monitored?

You no longer have a tax disc on your car (they stopped being used in 2014), so how do the government know if you are up to date on your tax?

Well, car tax data is now stored entirely on an electronic database, allowing authorities to use Automatic Number Plate Recognition (ANPR) cameras to check whether or not your vehicle is taxed. There are more than 8,500 ANPR cameras spread across the country that take information on around 30 million vehicles each day – if you don’t pay your car tax, you will be caught and could be fined up to £1,000.

What happens if you don’t pay UK car tax?

Even if you are exempt from car tax, you still have to go through the process of taxing it every year.

The punishment for avoiding car tax payments in the UK start off as pretty mundane, however can quickly escalate and you could find yourself more than £1,000 out of pocket.

The initial fine, charged to the registered keeper of the vehicle, is £80 – this will be issued within a Late Licensing Penalty (LLP) and can be halved to just £40 if paid within 28 days. If not paid, however, your case will be handed over to a debt collection agency.

At this point your vehicle is at risk of being clamped, leading to a minimum £100 clamp release fee. This fee is payable only within 24 hours of the clamp being applied.

If, following clamping, your vehicle is removed, the clamp release fee doubles to £200. As well as this, you will be expected to pay £21 for every day that the vehicle is kept in storage and a further £160 if you cannot produce proof of taxation at the time of release.

You have between 7 and 14 days to reclaim your vehicle, after which it will either be sold on, broken down for spare parts or even crushed.

Can you transfer car tax when you buy a new car?

As of October 2014, you can no longer transfer any remaining tax from your old vehicle to a new one.

When buying a new car you will have to tax it immediately – if buying from a dealer, they will usually do this for you at the point of sale.

Similarly, if selling a car privately, make sure that you inform the DVLA – any tax outstanding on the sold vehicle will be refunded to you via cheque.

I do not use my car – do I still need to tax it?

If your car will be out of use for a significant length of time, you may want to inform the DVLA by filling out a Statutory Off-Road Notice (SORN).

As long as your car isn’t being driven or parked on UK roads, you will not have to pay any vehicle tax (or car insurance).

You may decide to fill out a SORN agreement if you are moving to another country for an extended period of time, going away to university or serving a lengthy driving ban.

For more information on the implications of a SORN agreement on car tax, insurance and more, visit our guide here.

Is my car taxed? When does my car tax run out?

With the threat of hefty fines up to £1,000, you may be wondering: when does my car tax run out?

Checking your car or van tax can be done in just a few minutes on the government’s car tax page.

The only piece of information you’ll need to hand over is your vehicle registration number – you will then be presented with the due date of your car tax, its CO2 emissions, engine size and more.

How to renew vehicle tax – If I tax my car today, when will it start?

Taxing a car is incredibly straight forward and can be done in just a few minutes on the government website.

To tax a car online, all you’ll need is a reference number (taken from your V5C logbook or tax reminder letter) and a debit or credit card. Even if you are exempt from paying car tax (such as if you’re disabled or have an electric vehicle), you have to tax your vehicle every year.

Cancel car tax – How to get a car tax refund

If you sell your car, or fill in a SORN agreement, you may be able to get a refund on your tax. Tax refunds are available on vehicles that have been:

  • Sold, with ownership of the vehicle transferred elsewhere
  • Taken off the road with a SORN agreement
  • Written off by your insurer
  • Scrapped
  • Stolen
  • Exported to another country, outside of the UK
  • Recently registered as tax exempt

If any of these apply to you, inform the DVLA by phone, email, post or via their online webchat service.

Once your request has been confirmed, you will receive a cheque through the post corresponding to the number of months left on your existing vehicle tax. If you pay your vehicle tax by Direct Debit, this will be cancelled automatically.

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