Currently reading: Car tax: what you need to know about Vehicle Excise Duty
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
Autocar
News
8 mins read
3 July 2020

How much do you have to pay to tax your car? From today, 6 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.

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

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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. 

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*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 

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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

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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 

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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?​

Join the debate

Comments
12

1 April 2020

I thought I knew how the new system which comes in today would work but I'm finding some of the above examples confusing. So if I were to buy that Mustang today.

The Mustang is over £40k therefore an additional tax applies. It's also over 255g/km so will attract the highest 1st year tax.

I get the 1st year tax of £2175.

But where does the £560 come from?  I'd have thought each year would cost £150 (std tax) + £325 ( expensive tax ) which equals £475 a year.

By my calculations, total cost over 3yr is therefore £2175 + £950. £3125   ?

1 April 2020

As far as I can tell the main thrust of this is that all the company people that were told to buy diesels that poisoned us are no longer going to do so instead they can drive around with no tax to worry about if they buy an electric vehicle, that will leave the exchequer a bit short of cash so any calculations you make will probably fall short because "we" will have to pay for all the electric people who can drive around tax free. Same as it ever was, they even tried to retrospectively tax older petrol cars in 2004 however they didn't because of back bench revolt and all the abandoned vehicles that would have to be collected and disposed at tax payers expense, also don't forget just before they did that with outgoing petrol they also made 'joe bloggs' pay for the scrappage of perfectly good petrol vehicles so we could get into brand new diesel.

1 April 2020
405line wrote:

As far as I can tell the main thrust of this is that all the company people that were told to buy diesels that poisoned us

also don't forget just before they did that with outgoing petrol they also made 'joe bloggs' pay for the scrappage of perfectly good petrol vehicles so we could get into brand new diesel.

Another useless ignorant post. Nobody was ever told to buy diesel. I'm wasting my time explaining to the stupid, but here goes anyway.

If Greta Thurnburg had been born 20 years earlier, she would have been preaching like the rest of her Greenpeace colleagues back then about the depleating ozone layer and how we were all going to die of radiation if we didn't reduce the amount of C02 being produced. In this country, the chancellor of the day Gordon Brown was given a brief to lower CO2 and in the case of the motorist, used the tax system to promote lower producing Co2 vehicles. And to give him credit, he was successful. Co2 from vehicles went down.

And for the next 15 years there wasn't a problem, we didn't complain. Then VW did something naughty, they cheated the US emissions test. Now that's very important, it's the US tests they were found to cheat where NOx levels were higher than claimed.

What's NOx? Well we over here in Europe hadn't a clue because we were NEVER interested in NOx. I've been driving for nearly 40 years and interested in cars b4 that, and I'd never heard of NOx. The figure was never published in any car related documentation I saw.

Move on a few years, and now the armchair experts like to promote themselves as always in the know. You've rewritten history by saying we were told to buy diesels which is completely untrue. Get your facts right.

And you say diesel is poisonous. And no other fuel is?

VW emissions scandal did highlight poor emissions with diesel but that's now changed. You imply todays diesel is dirty and will poison you yet you ignore the advancement in emission tech. Now whether all that tech makes diesel as financially attractive is debateable.

And you imply those older petrol vehicles were perfectly good? No they weren't, they were dirty.

1 April 2020

Spot on Scotty5 I have also been buying diesel for forty years and won't change now, changing cars every few years and always keeping them serviced. These so-called greens? made a right mess of it all, they should have spent their time trying to get rid of old polluting cars of 10 years and older and that includes buses Trucks Vans and trains.

2 April 2020

an e39 from 2002 that is ulez compliant. Just because you don't really know anything about cars and the science is your issue. The japanese and the US did not produce diesel cars en mass for just that reason. The problems with diesel are well known about and have been for 7 decades or more, pathe news has a story about it. Diesel produced nitric acid etc etc and compound of Nitrogen. You obviously drive a diesel because the government told you it was greeen and less poluting than petrol and you bought it. And that's big D for dunces like you. 

1 April 2020
We were encouraged to buy low c02 cars which were predominantly diesels, all the motoring publications promoted diesel versions of almost every car as the best version to buy, completely disregarding how much use or miles driven, it was always buy the diesel, not small petrol or even hybrid, so no we weren't forced into buying diesels but we were encouraged. As for nox and particulate emissions, this was known about, I had certainly heard of it, it was often mentioned in motoring magazines re why diesels weren't popular in Japan for example.
Personally I don't vilify diesel, it still has its place for high mileage or long distance drivers and obviously as a tow car, but why would I want a diesel for doing 5-6k per year I don't know, and to be fair it took me until 2014/15 to be able to afford my first <120g/km car, so less than £30 rfl.
The new tax rules which don't promote low co2 cars is very odd in my opinion as we still want low emissions not just zero as the EVs don't yet suit everyone.

1 April 2020

Just don't understand why the government keeps changing all the car tax rules and regulations , it is an absolute shambles especially if you are looking for a used car , can they not for once keep it simple and straitforward so that at least some motorists can

1 April 2020

.....and straightforward so that at least some motorists can make the right choices when it comes to the age of the vehicle and potentially hundreds of pounds difference in tax between exactly the same car just because it is a year newer !.  How hard can it be to have the same basic setup and just allow small changes to take account of more lower emission vehicles on the road !.

2 April 2020

So now we have at least five different methods of applying road tax depending on the age of a vehicle, with wide disparity in methodology and cost. The system is totally unjust, positively encouraging the use of older gross polluting models and discouraging some newer zero emission ones. 

Surely the simple answer is to adjust fuel tax so that motorists travelling high mileages using dirty fuels and heavier vehicles pay most, and those travelling shorter distances with cleaner fuels and lighter vehicles pay least?  

2 April 2020
I've often thought the same, especially when I ran a car that was 1 g/km outside the £30 bracket and as such cost £115. It was the lowest tax car I could afford and I thought the hike in price from £30-£115 was ridiculous especially as I do less than 6k a year. But it is what it is, seems really at odds now though that you pay the same annual amount irrespective of pollution level, so a Prius and if under £40k a V8 Mustang are the same annual tax rate with just the purchase tax differing, which will be absorbed by the monthly PCP anyway. Seems ridiculous

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