How much does it cost to tax your car?

Gavin Braithwaite-Smith
Buy road tax annually, not monthly

‘Tax doesn’t have to be taxing’. The words of Adam Hart-Davis in an old advertising campaign for HM Revenue and Customs. Maybe so, but car tax can be a confusing business.

Not that it’s called ‘car tax’ or even ‘road tax’. Although these are the common terms for vehicle taxation in the UK, it’s actually called Vehicle Excise Duty (VED). In short, VED is a tax on vehicle ownership.

It’s one of two ways the government taxes you for using a vehicle. The other is in the form of fuel duty. This is a tax on vehicle use. The more you use a car, the more tax you pay.

VED is different. It’s a fixed annual tax which is charged on every ‘mechanically propelled vehicle’ used or kept on a public road. Although some cars are exempt from VED, the only way to avoid paying vehicle tax is to remove the car from the road and declare a SORN.

Since March 2001, the rate of VED has been based on a car’s carbon dioxide (CO2) emissions. The lower the CO2, the less you’ll pay for VED. In 2010, the government introduced a new ‘first year’ rate of taxation, which was as much as £950 for the most polluting cars. This continues today and might be referred to as ‘showroom tax’.

The paper tax disc was abolished on 1 October 2014. Today, motorists can pay annually, biannaully or monthly.

Because the VED bands have changed so much, particularly since the introduction of rates based on CO2 emissions, it can be hard to work out how much tax you’ll pay. Here, we’ll attempt to cut through the tax jungle, helping you to see the wood from the trees.

Buying a new car

Hyundai Minstergate York new car showroom

If you’re buying a new car, the first year of VED will be included in the price of the vehicle in the form of a ‘showroom tax’. There are three rates:

  • Diesel cars that meet the RDE2 standard and petrol cars
  • All other diesel cars
  • Alternative fuel cars

Alternative fuel vehicles include hybrid, bioethanol and liquid petroleum gas (LPG).

Only two types of vehicle are exempt from VED: electric cars and alternative fuel vehicles emitting up to 50g/km CO2. All other cars incur a rate of £10 to £2,175, depending on the CO2 emissions.

The ‘showroom tax’ covers the vehicle for 12 months. From year two, the rate drops to a flat rate of £150 for petrol or diesel cars, £140 for alternative fuel vehicles, or nothing for electric cars.

However, you have to pay an extra £325 a year for a car with a list price of more than £40,000. This is charged ON TOP of the standard flat rate for five years from the second time the vehicle is taxed. 

In other words, a petrol or diesel car with a list price of more than £40,000 will cost £475 to tax from year two. There’s a £5 discount for alternative fuel vehicles, but the ‘premium’ tax was scrapped for new and existing electric vehicles in 2020.

Motorists paying this ‘premium’ tax for an electric car registered because 1 April 2020 will no longer have to pay the surcharge. The exemption is set to continue until 31 March 2025, as the government continues to encourage the purchase of zero emission vehicles.

  • CO2 emissions (g/km)
  • 0
  • 1-50
  • 51-75
  • 76-90
  • 91-100
  • 101-110
  • 111-130
  • 131-150
  • 151-170
  • 171-190
  • 191-225
  • 226-255
  • Over 255
  • RDE2 diesel and petrol
  • £0
  • £10
  • £25
  • £110
  • £135
  • £155
  • £175
  • £215
  • £540
  • £870
  • £1,305
  • £1,850
  • £2,175
  • All other diesel cars
  • £0
  • £25
  • £110
  • £135
  • £155
  • £175
  • £215
  • £540
  • £870
  • £1,305
  • £1,850
  • £2,175
  • £2,175
  • Alternative fuel cars
  • £0
  • £0
  • £15
  • £100
  • £125
  • £145
  • £165
  • £205
  • £530
  • £860
  • £1,295
  • £1,840
  • £2,165

Buying a used car registered on or after 1 April 2017

Auto industry comes out on top for reputation

Because the ‘showroom tax’ is only relevant in the first year, the figures in the table above do not apply to used cars. That’s because all cars revert to the flat rate of VED from year two.

In other words, you’ll pay £150 for a petrol or diesel car, £140 for an alternative fuel car, or nothing for an electric vehicle. VED can be paid for annually, biannually or monthly, although there’s a small surcharge if you decide to pay biannually or monthly.

  • Fuel type (petrol, diesel, alternative or electric)
  • Petrol or diesel
  • Electric
  • Alternative
  • Single 12 month payment of VED in full
  • £150
  • £0
  • £140
  • Single 12 month payment by Direct Debit
  • £150
  • N/A
  • £140
  • Total of 12 monthly payments by Direct Debit
  • £157.50
  • N/A
  • £147
  • A single 6 month payment (half the entire VED)
  • £82.50
  • £0
  • £77.00
  • Single 6 month payment of VED by Direct Debit
  • £78.75
  • N/A
  • £73.50

Remember, the £325 ‘premium’ tax applies for five years from the second time the vehicle is taxed. You should check the original list price before buying a used car, because the difference between the tax on a car costing £39,999 and one costing £40,001 could be as much as £1,625 over five years.

Buying a used car registered between 1 March 2001 and 31 March 2017

Average price of a used car in 2019

The rate of VED for vehicles registered between 1 March 2001 and 31 March 2017 is based on fuel type and CO2 emissions. You can find the CO2 emission details on the car’s V5C registration certificate.

It’s worth paying close attention to the rate, especially if you’re looking at cars registered around the time of the switch to a new fee structure at the end of March 2017 and the beginning of April 2017.

Take a petrol or diesel car with CO2 emissions up to 100g/km and registered on 31 March 2017. The car is exempt from VED. The same car, registered a day later, could cost £10 to £135, depending on the CO2 figure. That’s because only zero emission cars are exempt from VED.

Buy a petrol or diesel car with CO2 emissions over 255g/km and you’ll pay £580 a year. In broad terms, a petrol or diesel car emitting up to 140g/km will cost the same or significantly less than an equivalent car registered on or after 1 April 2017. Anything beyond that figure will cost more.

Petrol and diesel cars

  • Vehicle Excise Duty (VED) band
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • J
  • K*
  • L
  • M
  • CO2 emissions (g/km)
  • Up to 100
  • 101-110
  • 111-120
  • 121-130
  • 131-140
  • 141-150
  • 151-165
  • 166-175
  • 176-185
  • 186-200
  • 201-225
  • 226-255
  • Over 255
  • Single 12 month payment
  • £0
  • £20
  • £30
  • £125
  • £150
  • £165
  • £205
  • £240
  • £265
  • £305
  • £330
  • £565
  • £580
  • Single 12 month Direct Debit
  • £0
  • £20
  • £30
  • £125
  • £150
  • £165
  • £205
  • £240
  • £265
  • £305
  • £330
  • £565
  • £580
  • 12 monthly by Direct Debit
  • N/A
  • £21
  • £31.50
  • £131.25
  • £157.50
  • £173.25
  • £215.25
  • £252
  • £278.25
  • £320.25
  • £346.50
  • £593.25
  • £609
  • Single 6 month payment
  • N/A
  • N/A
  • N/A
  • £68.75
  • £82.50
  • £90.75
  • £112.75
  • £132
  • £145.75
  • £167.75
  • £181.50
  • £310.75
  • £319
  • Single 6 month by Direct Debit
  • N/A
  • N/A
  • N/A
  • £65.63
  • £78.75
  • £86.63
  • £107.63
  • £126
  • £139.13
  • £160.13
  • £173.25
  • £296.03
  • £304.50

*Includes cars with a CO2 figure over 225g/km but were registered before 23 March 2006.

Alternative fuel cars

  • Vehicle Excise Duty (VED) band
  • A
  • B
  • C
  • D
  • E
  • F
  • G
  • H
  • I
  • J
  • K*
  • L
  • M
  • CO2 emissions (g/km)
  • Up to 100
  • 101-110
  • 111-120
  • 121-130
  • 131-140
  • 141-150
  • 151-165
  • 166-175
  • 176-185
  • 186-200
  • 201-225
  • 226-255
  • Over 255
  • Single 12 month payment
  • £0
  • £10
  • £20
  • £115
  • £140
  • £155
  • £195
  • £230
  • £255
  • £295
  • £320
  • £555
  • £570
  • Single 12 month Direct Debit
  • £0
  • £10
  • £20
  • £115
  • £140
  • £155
  • £195
  • £230
  • £255
  • £295
  • £320
  • £555
  • £570
  • 12 monthly by Direct Debit
  • N/A
  • £10.50
  • £21
  • £120.75
  • £147
  • £162.75
  • £204.75
  • £241.50
  • £267.75
  • £309.75
  • £336
  • £582.75
  • £598.50
  • Single 6 month payment
  • N/A
  • N/A
  • N/A
  • £63.25
  • £77
  • £85.25
  • £107.25
  • £126.50
  • £140.25
  • £162.25
  • £176
  • £305.25
  • £313.50
  • Single 6 month by Direct Debit
  • N/A
  • N/A
  • N/A
  • £60.38
  • £73.50
  • £81.38
  • £102.38
  • £120.75
  • £133.88
  • £154.88
  • £168
  • £291.38
  • £299.25

*Includes cars with a CO2 figure over 225g/km, but registered before 23 March 2006.

Buying a used car registered before 1 March 2001

Classic Car Auctions virtual sale

For cars registered before 1 March 2001, the rate of VED is based on the engine size. The cost is £165 for engines not over 1,549cc, or £270 for engines over 1,549cc.

  • Engine size (cc)
  • Not over 1,549
  • Over 1,549
  • Single payment
  • £165
  • £270
  • Single by Direct Debit
  • £165
  • £270
  • 12 months by Direct Debit
  • £173.25
  • £283.50
  • Single 6 month payment
  • £90.75
  • £148.50
  • Single 6 month by Direct Debit
  • £86.63
  • £141.75

Vehicles exempt from car tax

The following vehicles are exempt from VED. In other words, it’s free to tax them:

  • Vehicles used by a disabled person
  • Disabled passenger vehicles
  • Mobility scooters and powered wheelchairs
  • Historic vehicles
  • Electric vehicles
  • Mowing machines
  • Steam vehicles
  • Vehicles used for agriculture, horticulture and forestry

It’s important to remember that you must tax a vehicle, even if it is exempt from VED. Failure to do so could result in a fine of up to £1,000. If you do not intend to use the vehicle, declare a SORN and remove it from the road.

Taxing historic vehicles

Fast Ford sale NEC Classic

You do not need to pay car tax if your classic car was built before 1 January 1980. If you do not know when your vehicle was built, but it was first registered between 1 and 7 January 1980, you do not need to pay VED.

However, you must apply for a vehicle tax exemption to stop paying tax. This is called putting a vehicle into the ‘historic tax class’.

This is a rolling exemption scheme. You may be able to apply for exemption from 1 April in any given year if it was built before 1 January 40 years ago. In other words, a car registered in February 1980 will be classed as an historic vehicle from 1 April 2021.

What else do you need to know?

The VED is reviewed annually as part of the Budget. The combination of pressure to meet air quality targets and a shift towards electrified vehicles should mean VED remains free for electric cars. If nothing else, VED is likely to get more expensive for the most polluting diesel and petrol vehicles.

That said, there will be a point at which sales of new electric cars outnumber those of what we currently view as conventional vehicles. There’s no guarantee that zero emission cars will remain free of VED forever, but you should take advantage of the exemption while it’s still in place.

More information

The post How much does it cost to tax your car? appeared first on Motoring Research.

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