Leased Car Tax: Your Essential Guide

Navigating the world of car leasing can sometimes feel like deciphering a foreign language, especially when it comes to the often-confusing topic of road tax. Many customers find themselves wondering who is responsible for taxing their leased vehicle and whether these costs are factored into their regular monthly payments. At LeasePartner, we understand these queries and have put together this comprehensive guide to demystify the process of taxing your leased vehicle.

What Exactly is Road Tax and What Does it Fund?

Vehicle Excise Duty (VED), commonly referred to as vehicle tax, car tax, or simply road tax, is a periodic tax levied as an excise duty. In the United Kingdom, it is a legal obligation to pay VED on any motor vehicle that is used or parked on public roads. For vehicles that are not kept on public roads, a Statutory Off-Road Notification (SORN) must be submitted if the vehicle is not licensed. The current system for determining car tax rates is based on CO2 emissions, a departure from earlier methods that focused on engine size. Car tax rates are organised into thirteen bands, labelled A through M, with each band corresponding to a specific range of tailpipe CO2 emissions as measured during official testing. These rates can vary significantly, from £0 per year for vehicles with low emissions in Band A to a substantial £515 per year for vehicles emitting over 255 g/km of CO2, placing them in Band M.

Is Road Tax Typically Included in a Lease Agreement?

The inclusion of road tax within a lease agreement is a common point of interest. Generally, all lease agreements arranged through providers like LeasePartner will encompass road tax, either for the entire duration of the contract or for the initial year only. The specific duration for which the tax is covered is contingent upon the type of contract you have entered into. For Business Contract Hire or Personal Contract Hire agreements, the finance provider, who remains the registered owner of the vehicle, will typically arrange and cover the vehicle tax for the entire term of the agreement. However, it's important to note that if the cost of vehicle tax increases during the term of your agreement, or any extended period, you, the customer, will become liable for the difference. In contrast, for finance lease agreements, the funder usually only provides tax cover for the first 12 months. For Operating leases or Personal Contract Purchase (PCP) agreements, tax is commonly included for the first year only, after which it becomes your responsibility. You are responsible for paying the road tax until the vehicle is purchased or collected, and the lease is terminated. If your lease includes road tax for the full term, you generally don't need to take any action, as the funder will manage the annual renewal. The only exception might be if the government increases the cost of road tax during the lease period; these unexpected tax increases are typically not factored into the initial lease pricing, and you would be responsible for paying the additional amount.

Who Bears the Responsibility for Taxing a Leased Vehicle?

To tax a vehicle, the registered owner or keeper must possess the Vehicle Excise Duty (VED) reminder letter, known as the V11, or the vehicle's registration certificate, also called the logbook or V5C. For contract hire or personal contract hire agreements, the finance provider is designated as the registered owner and keeper of the vehicle. Consequently, they are the party responsible for ensuring the vehicle tax is provided for the duration of the agreement. A significant change to note is that since October 2014, the traditional paper tax discs have been discontinued. Vehicle licensing details are now managed centrally within a database. While physical tax discs are no longer issued, vehicles absolutely still require taxing, and it is the responsibility of the funder (in the case of contract hire) to ensure this is done annually.

How Can You Verify Your Leased Vehicle's Tax Status?

If you are operating under a Business Contract Hire or Personal Contract Hire agreement and wish to confirm that your vehicle's tax is up-to-date, you can easily do so by visiting the official DVLA website. To perform this check, you will need two key pieces of information: the registration number of your vehicle and its make. Should you discover, for any reason, that your vehicle tax has expired, it is crucial that you contact your finance provider as soon as possible to report the issue. This is of paramount importance because driving an untaxed vehicle can lead to severe consequences, including the vehicle being wheel clamped or even instantly impounded by authorities. If you find yourself with any further questions or require clarification on any aspect of leased vehicle road tax, please do not hesitate to contact us directly. You can reach us by phone at 01942 311508, and we will be more than happy to assist you.

When is Road Tax Paid on a Lease?

The timing of road tax payments on a lease depends entirely on the specifics of your agreement. As mentioned, for the most popular leasing arrangements like Contract Hire and Personal Contract Hire, road tax is typically included for the entire duration of the lease term. This means the funder handles the annual renewal. For other types of agreements, such as Operating Leases or Personal Contract Purchase (PCP) deals, the tax is usually covered only for the first year. After this initial period, the responsibility shifts to you, the lessee, to ensure the vehicle is taxed. You will be responsible for paying the road tax up until the point the vehicle is purchased outright or collected at the end of the lease term, thus terminating the agreement. It is vital to remember that road tax is not included in the sale of used cars. When a used car is leased, the road tax is paid by the person or company leasing the vehicle at the time of the sale.

Consequences of Not Taxing Your Vehicle

It is imperative that you tax your vehicle before it can be legally driven on the roads. Failure to do so can result in significant penalties, including penalty points on your driving licence and substantial fines. The funds generated from road tax contribute towards the upkeep and maintenance of our road network, among other vital public services.

Key Takeaways for Leased Vehicle Road Tax:

Frequently Asked Questions (FAQs)

Q1: Do I need to do anything if road tax is included for the full lease term?

A1: No, if your lease agreement explicitly states that road tax is included for the full term, the funder will handle the annual renewal. You will only need to take action if there's an increase in the government-set tax rates during your lease period, in which case you'll be liable for the additional cost.

Q2: What happens if the cost of road tax increases during my lease?

A2: If the government increases the cost of vehicle tax during your lease term, and your agreement includes tax for the full term, you will typically be responsible for paying this increase. These unexpected rises are usually not factored into the original lease pricing.

Q3: How can I check if my leased vehicle is correctly taxed?

A3: You can check the tax status of your vehicle by visiting the DVLA website and entering your vehicle's registration number and make. If you have a Contract Hire or Personal Contract Hire agreement, you can also contact your finance provider if you have any concerns.

Q4: What are the penalties for driving an untaxed leased vehicle?

A4: Driving an untaxed vehicle is illegal and can result in your vehicle being wheel clamped or impounded, as well as attracting penalty points on your driving licence and significant fines.

Q5: Is road tax included when leasing a used car?

A5: Typically, road tax is not included when leasing a used car. The responsibility for taxing the vehicle falls to the person or company leasing it from the point of sale.

We hope this guide has provided clarity on the subject of road tax for leased vehicles. If you have any further questions or require assistance with your vehicle's road fund licence, please do not hesitate to contact us.