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.
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.