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?
Do I have to pay car tax?
How often do I have to pay car tax (VED)?
How do I pay VED?
Do I have to pay car tax if I'm not driving my car?
VED on diesel cars
Does it matter how much my car costs?

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 car tax?

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:

Paying online with Direct Debit, debit or credit card via www.gov.uk/vehicle-tax
Nearest Post Office: You will need to make sure you have a valid MOT and car insurance
Motor Trader can still pay the tax on your behalf

Do I have to pay car tax if I'm not driving my car?

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. If you've registered a SORN, you can claim a refund on your car tax for any months that you've paid for in advance.

VED on diesel cars

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.

One way they are doing this is via Real Driving Emissions 2 (RDE2), an emissions standard that affects the price of tax on your vehicle. The latest iteration of the RDE2, with a higher threshold than before was introduced as mandatory in January 2021. The RDE2 meant that the VED for some diesel cars increased by £500.

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.

Car and Vehicle Tax Explained - Money Expert