Road tax: all you need to know

We explain the intricacies of road tax, or Vehicle Excise Duty as it’s also known.

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What is road tax (VED)?

Road tax is car tax.  But ‘road tax’ is the short cut many of us use when we talk about vehicle excise duty (VED). It’s the annual tax that must be paid on most vehicles used on UK public roads.

Its cost depends upon when your car was registered, or how old it is, and how ‘clean’ the government considers it. For much older cars (pre 1 March 2001), the size of the engine will determine how much you pay – less tax or more .

Oh, and cars older than 40 years – even if they’re gas guzzlers – pay no VED whatsoever. It pays to be an OAP sometimes.

How much does road tax (VED) cost?

It depends on what you drive but there are easy ways to check by entering your registration number plate.

The Government has made several chunky changes to car tax – even if a few strange contradictions hang about. (The RAC claims it takes 50 new cars to produce the same emissions as just one from the 1970s – yet many 40-year-old or older cars are now VED-free.)

From 1 April 2019 VED rates climb in line with retail price inflation (RPI). The UK car tax system is not retroactively applied for older cars, apart from inflationary price hikes. That’s good for long-term motoring budgeting. But motorists have much less control over future road tolls and congestion charging.

If you drive an electric vehicle costing under £40,000 you won’t pay any VED. That’s because the government considers that you run a pollution-neutral vehicle.

But – you’re warned – you still have to apply for this tax exemption every year, or risk a penalty.

Are diesel cars still in the firing line?

Very much so. If you’re considering a new diesel car be aware of the new Real Driving Emissions 2 (RDE2) standard. This is an effort to tax cars according to their ‘real world’ emissions standards. Or how much poisons – nitrogen oxides, carbon monoxide and hydrocarbons – a car tailpipe pushes out.

It applies to new cars registered after 1 April 2018. The changes meant some diesel cars saw a £500 rise in their VED.

If a diesel car doesn’t meet the RDE2 standard it will be taxed at the next higher tax band – though only for the first year. Car manufacturers don’t have to apply this standard until January 2020. It’s an inducement to encourage car makers to improve emissions performance sooner not later.

What about cars registered on or after 1 April, 2017?

The rates are different for cars registered on or after 1 April, 2017. In the first year of registration, the rate is set according to the car’s emissions. In subsequent years, most cars will pay a flat ‘standard’ rate of £140. Alternative fuel cars will pay £130 a year and zero emissions cars will pay nothing.

You can buy road tax for the full year or for six months, though there is a 5% surcharge for a six-month tax disc. Motorists can also spread the cost of an electronic tax disc by paying in monthly instalments, though again the government levies the 5% surcharge.

DVLA stores all vehicle ownership records electronically and both it and the police now use the electronic vehicle register to check if a vehicle should be on the road.

As a result, drivers no longer need to display a paper tax disc in their windscreen.

What about £40,000-plus cars – are they more expensive to tax?

They are indeed. Vehicles costing more than £40,000 are subject to an annual £310 supplement a year for five subsequent years after the first year. But be careful with the maths. Even if your showroom floor negotiation skills are formidable and you clip £7,000 off a £40,000 car you are still liable for the full-fat VED £40,000 tax.

That’s because VED is measured on the official list price of a vehicle. No haggling here, sadly. The same goes for the options list – so don’t overload things too much. Once you’re past the £40,000 threshold your car becomes VED-heavy.

The extra tax on £40,000-plus cars also applies to EVs – however clean they claim to be.

How does this all stack up, money-wise?

Fuel type

Rates for Years 2, 3, 4 & 5 including the extra £310 a year

Six-month direct payment

Petrol and diesel cars

£450

£236.25

Electric Vehicles

£310

£162.75

Alternative-fuelled vehicles

£440

£231

Cars registered before 1 March 2001

Phew, things are much more simpler here. VED is measured solely on engine size. If your car’s engine is below 1549cc you pay £155 a year. If it’s more than that you pay £255. But if you can hang onto it for 40 years or more then you owe nothing.

Unless, of course, VED policy changes again. Perhaps don’t bet against it.

If you’re buying a vehicle

If you’re buying a car, you can't carry over any remaining months on the tax disc – and the seller can't give or transfer that ‘unused’ tax to you, whether they want to or not.

In other words, if you buy a car in March that is taxed until August, you cannot continue to use the existing tax payment that is associated with the car.

Instead, you have to tax it yourself. And here’s the kicker: you’ll have to make the purchase before you can drive the vehicle. There is no grace period.

If the vehicle is already registered in your name, you can use the 11-digit reference number on the log book (or V5C to give it its true title).

If you have only just bought the vehicle and it is not yet registered, you will need the 12-digit reference number on the New Keeper Supplement (V5C/2).

You can buy a tax disc online at GOV.UK or use the automated telephone service 0300 123 4321.

Alternatively, you can visit your nearest Post Office. You will also need a valid MOT and motor insurance. If you buy online the system will check to see if you’ve got everything in place.

A motor trader is still able to tax the vehicle on your behalf.

If you’re selling a vehicle

If you're selling your car, you need to notify the DVLA by returning the relevant portion of the V5C, or risk a fine of £1,000.

If there are any full months outstanding on the road tax, a refund will be processed automatically. So if your tax disc ran until 1 September 2018, for example, and you sold the car in the middle of May 2018, you will be entitled to a three-month refund (for June, July and August).

(This means you won’t get a full refund – something that has irritated many drivers, especially as the new owner has to tax the vehicle from the beginning of the purchase month, creating a payment overlap.)

Also bear in mind that surcharges are not refundable. So, if you have paid in instalments or have a six-month tax disc, you could lose out.

If you dodge the tax you have to pay, the penalties can be harsh – including a fine of up to £1,000. Keep in mind that ignorance of the rules is no defence.

If you’re transferring ownership of a vehicle

If you transfer ownership of your car to someone else without actually selling it – if you’ve given the car to your partner or a friend, for instance – you still can’t pass the tax on and will have to still register the transfer of the vehicle with DVLA using the V5C in the same way as if you had sold it.

You’ll automatically get a refund for any remaining full months left on the vehicle tax when ownership was transferred and DVLA will also cancel your direct debit if you were paying monthly.

If you’ve taken ownership of a vehicle transferred to you by someone else, you’ll need to tax the vehicle or make a statutory off-road notification (SORN) from the date it was transferred to you.

If the vehicle is off the road (SORN)

In the same way you can’t transfer road tax when you buy, sell or transfer a vehicle, you can’t transfer a SORN either.

So if you buy a car that has been declared as being kept off the road, this SORN can’t be included as part of the sale or passed on to you so you’ll have to tell DVLA the car is off the road by making a SORN. You can do this at GOV.UK or by phone on 0300 123 4321.

Again, if you dodge tax, the penalties can be harsh – if your vehicle isn’t taxed or it has no SORN it may be clamped and could be hit with a fine of up to £1,000.

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