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Car tax explained

If you want to drive a vehicle on public roads you must register it and pay a car ‘tax’. This tax varies depending on how old your car is, its worth, and crucially how much carbon dioxide (CO2) it emits. This guide will take you through the key points of car tax, how much you might have to pay, and what happens when you buy or sell a car.

In This Guide:

What is car tax?

Vehicle Excise Duty (VED) or ‘car tax’ is the annual payment each car owner must make in order to use them on public roads. In general, how much CO2 your car emits and how expensive it is, determines how much car tax you will pay.

Do I have to pay it?

As the car tax system is based on CO2 emissions certain cars are exempt from VED, these include:

  • ‘Historic Vehicles’ - these are vehicles that are 40 years old or more.
  • Car Registered between 2001 - 2017: If they produce less than 100grams of CO2 per kilometre.
  • Brand New Cars: 0 grams of CO2 per kilometre and are worth less than £40,000.

As well as certain cars, you can be exempt from VED if you have a disability and:

  • Receive Disability Living Allowance on the higher rate for mobility or the enhanced rate mobility component of Personal Independence Payment (PIP)
  • Invalid carriage e.g. motorised scooter
  • War Pensioner’s Mobility Supplement
  • Armed Forces Independence Payment

How often do I have to pay car tax (VED)?

The most simple and cheapest option is to pay your VED once a year. Should you not want to, you are allowed to pay for a 6-month tax ‘disc’ or even in monthly instalments. However, if you choose these options you will have to pay a 5% surcharge and will therefore end up paying more in the long term.

How do I pay VED?

There are multiple ways that you can pay your car tax, these include:

What if I don’t want to drive it?

If you don’t want to drive your car on public roads you can register it with a statutory off-road notice (SORN). This means that you do not have to pay car tax, but you can in no instance take it onto a public road and will face heavy penalties if you do.

Does it matter if my car is diesel?

As you may have seen in the news, in recent years the government has been trying to curb the sale of diesel cars because of their pollution. Very recently there was the introduction of the Real Driving Emissions 2 (RDE2) standard, this was essentially a tax on the actual amount of dangerous emissions a car produces. The RDE2 meant that the VED for some diesel cars increased by £500.

What were the recent changes to VED?

The rules surrounding VED have changed since 1 April 2017 and will affect your car tax so should be looked at closely. Essentially in the first year that you register your car you will have to pay a tax according to the amount of emissions that the car produces. After this, you will pay a flat rate with most cars having to pay around £140.

Does it matter how much my car costs?

Yes, if your car is worth over £40,000 you will have to pay more in VED. It applies even if you manage to negotiate down the price on the shop floor. This is because it’s based off of the list price of the car and not what you have paid for it.

What happens when I buy a car?

As soon as you buy a car you have to register it and pay tax on it, there is no ‘grace’ period like in other situations. Importantly, you cannot ‘transfer’ across VED or use the VED that has already been paid on it.

What happens when I sell a car?

When you sell your car, you have to notify the DVLA instantly otherwise you could receive a large fine of £1,000. If you have paid the VED and still have months left on it, you will be automatically refunded for the months that you did not use. If you have paid monthly, or for the six-month disc the surcharges are not refundable so that 5% you have been paying is lost.

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