23/11/2017
The Evolution of Vehicle Excise Duty in the UK
Vehicle Excise Duty (VED), commonly known as road tax, car tax, or the road fund licence, is a mandatory payment for all UK drivers to legally operate or park their vehicles on public roads. Introduced in the 20th century, the VED system has undergone numerous transformations, often leading to confusion for motorists. This guide aims to demystify the various VED tax bands, outline the costs associated with road tax, explain how to make payments, and detail the procedures for when you sell your car or take it off the road.
When acquiring a new or used vehicle, paying the VED tax is generally a prerequisite. However, certain exceptions exist. For instance, drivers of electric cars or vehicles with zero carbon emissions are currently exempt from paying road tax, though this exemption is scheduled to change in April 2025. Additionally, classic cars that are over 40 years old, and vehicles used by or transporting disabled individuals, are also eligible for exemption.
The past decade has witnessed significant shifts in the VED structure. Previously, a car's tax liability was partly determined by its environmental pollution levels. As vehicles have become more efficient and environmentally friendly, the government has implemented adjustments to compensate for reduced revenue collection. The Office for Budget Responsibility forecasts that VED will generate approximately £9.4 billion by 2027/28, a notable increase from the £7.3 billion collected in 2022-23 and £5.8 billion prior to the 2017 VED tax reforms. This upward trend in revenue collection has been consistent since the 1990s. However, with the rising popularity of electric vehicle (EV) sales, further changes to the VED system may be anticipated.
It is a common misconception that road tax revenue is directly allocated to the maintenance and construction of public highways. In reality, the funds collected contribute to the central government's general budget, which can be utilised for various public services.
Determining Your Road Tax Liability
The primary factor influencing your VED payment is the date your vehicle was first registered. Barring inflationary adjustments, changes to the road tax system are not applied retroactively. This means that regardless of any subsequent reforms, you will continue to pay based on the tax structure that was in effect at the time of your car's initial registration.
Vehicles purchased today are taxed according to the band system introduced during the significant overhaul on April 1, 2017 (with adjustments for inflation). Conversely, vehicles registered before April 1, 2017, will be taxed under the previous band structure, even if they remain in production.
The current UK road tax system operates on two main rates. The first rate applies to a vehicle's first year on the road and is contingent upon its carbon dioxide (CO2) emissions. After the first year, your vehicle will be taxed under the second system, which is not influenced by CO2 emissions but by the vehicle's original purchase price. Both systems consider the vehicle's powertrain, whether it's electric, conventional fuel, or a hybrid.
VED Tax Calculation Breakdown
The first-year road tax is incorporated into the car's on-the-road (OTR) price and is calculated based on CO2 emissions. This ranges from £0 for zero-emission vehicles to a maximum of £2,745 for models emitting 255g/km or more.
Important Note for Diesel Owners: Previously, most diesel cars were subject to a higher first-year tax band if they did not meet the latest emissions standards (RDE2). However, since January 2021, meeting RDE2 has become a legal requirement for all new vehicles, rendering this distinction obsolete for newer registrations.
Road Tax for Vehicles Registered Between March 1, 2001, and March 31, 2017
The emission-based VED system was implemented by the UK government on March 1, 2001. This system featured tax bands that increased in line with a vehicle's CO2 emissions. The following table illustrates the frozen rates for vehicles registered before the overhaul on March 31, 2017:
| VED Band | CO2 Emissions (g/km) | Annual Rate |
|---|---|---|
| A | Up to 100 | £0 |
| B | 101-110 | £20 |
| C | 111-120 | £35 |
| D | 121-130 | £160 |
| E | 131-140 | £190 |
| F | 141-150 | £210 |
| G | 151-165 | £255 |
| H | 166-175 | £305 |
| I | 176-185 | £335 |
| J | 186-200 | £385 |
| K | 201-225 | £415 |
| L | 226-255 | £710 |
| M | Over 255 | £735 |
Tax Bands for Vehicles Registered After April 1, 2017
Following the reforms implemented in April 2017, VED tax bands are no longer solely calculated on a vehicle's emissions for subsequent years. While emissions remain a factor for the first year of ownership, from the second year onwards, owners are subject to the standard petrol or diesel rate. Electric cars and zero-emission vehicles continue to be exempt until April of the following year.
Expensive Car Supplement: If your vehicle's list price exceeds £40,000, you will also be liable for the Expensive Car Supplement, often referred to as the 'luxury car tax'. This incurs an additional £410 charge on top of the standard annual rate of £190. This supplement applies for the first five years of the vehicle's life, subject to inflationary increases.
| CO2 emissions (g/km) | Standard petrol/diesel rate | First year rate |
|---|---|---|
| 0 | £0 | £0 |
| 1 to 50 | £190 | £10 |
| 51 to 75 | £190 | £30 |
| 76 to 90 | £190 | £135 |
| 91 to 100 | £190 | £175 |
| 101 to 110 | £190 | £195 |
| 111 to 130 | £190 | £220 |
| 131 to 150 | £190 | £270 |
| 151 to 170 | £190 | £680 |
| 171 to 190 | £190 | £1,095 |
| 191 to 225 | £190 | £1,650 |
| 226 to 255 | £190 | £2,340 |
| Over 255 | £190 | £2,745 |
How to Pay Your Car Tax
While the VED system can appear complex, the payment process is straightforward. The most convenient method is to visit the official government website and select the 'tax your vehicle' option. This guides you through a simple step-by-step process, typically requiring the reference number found on your V11 reminder letter from the DVLA. Alternatively, you can make payments at most Post Offices using your V5C registration document.
Monitoring Car Tax Compliance
The UK government employs a modern system of automatic number plate recognition (ANPR) cameras, integrated with DVLA databases, to monitor VED compliance. The abolition of the physical tax disc in 2014, after 93 years of use, streamlined the system's operational costs and made it more challenging for individuals to evade tax payments. The ANPR cameras have replaced the visual checks previously facilitated by tax discs.
The DVLA will issue a reminder as your road tax renewal deadline approaches. You can then proceed to pay your road tax online, by phone, or at a Post Office. The government continues to offer options for paying six or twelve months in advance, with an additional facility for monthly payments. A direct debit option is available for monthly payments. However, it is important to note that convenience often comes with a small surcharge, typically around five per cent.
Taking Your Car Off the Road: Statutory Off Road Notification (SORN)
If you intend to stop using your vehicle for six months or more, you can declare it SORN to avoid paying road tax. It is crucial to understand that 'off the road' strictly means the vehicle must not be on a public highway. You must have off-street parking, such as a garage or private driveway, to be eligible for SORN. Parking on a public road necessitates continued payment of road tax and a valid MOT certificate.
SORN declarations can be made at any time using your V5C registration document. Alternatively, you can declare SORN when you receive a reminder from the DVLA by using the 16-digit renewal code. If you have already paid for a period that you subsequently declare SORN, you will be eligible for a refund for the unused months.
To bring your vehicle back onto the road, you simply need to tax it again, which automatically cancels the SORN status.
What Happens When You Sell Your Car?
Under the current system, the responsibility for any outstanding road tax does not transfer to the new owner. Instead, the seller is entitled to a refund for any remaining tax on the vehicle, while the buyer must re-tax the vehicle upon purchase. The refund is automatically processed when the DVLA is notified of the vehicle's sale, scrappage, export, or SORN declaration.
It is imperative for sellers to inform the DVLA of the sale promptly. Failure to do so can result in a penalty of up to £1,000. This notification ensures a smooth transfer of ownership and the timely processing of any applicable tax refunds.
Frequently Asked Questions
- Do I have to pay road tax for an electric car? Currently, electric vehicles and those with zero emissions are exempt from road tax, but this will change from April 2025.
- What happens if I don't pay my road tax? Driving or parking a vehicle on a public road without valid road tax is illegal and can result in penalties, fines, and the inability to renew your MOT.
- Can I use SORN if I don't pay road tax? Yes, you can use Statutory Off Road Notification (SORN) if you are not using your vehicle on a public road for six months or more. This exempts you from paying road tax.
- How do I know when my road tax is due? The DVLA will send you a V11 reminder letter before your road tax expires.
- Is the road tax refund automatic when I sell my car? Yes, the refund for any remaining road tax is automatically processed once the DVLA is notified of the sale.
If you want to read more articles similar to Understanding UK Road Tax, you can visit the Automotive category.