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What is car tax?

A car windscreen. Car tax no longer needs to be displayed.

Vehicle Excise Duty (VED) or car tax is a legal requirement for most cars on our roads. It can be calculated based on a number of factors, from the car's engine size to its year of registration and CO2 emissions.

As the tax system has undergone some changes in the past few years, we thought we'd put together this quick guide explaining exactly how car tax works.

What is car tax for?

Contrary to popular belief, car tax doesn't directly fund the upkeep of public roads in the UK. It's actually paid into what's known as the Consolidated Fund, which is the government's general pot of money. Road maintenance does come from this pot so, technically, car tax does help keep our road network in check.

Generally speaking, though, road tax is paid by drivers so they can use, or park, their cars on public roads. Drivers need to have car insurance in place and, in most cases, a valid MOT certificate unless the car is exempt because of its age.

Car tax bands explained

Car tax bands are a little complicated, especially due to changes introduced from April 2018. The tax you pay will be based on when the car was registered - you can find tax rates tables and a vehicle tax rate calculator on the Gov.UK website. In summary:

  • Cars registered before 1 March 2001 will pay tax depending on engine size.
  • Cars registered after 1 March 2001 but before 1 April 2017 will continue to be taxed at their respective rates based on CO2 emissions.
  • Cars registered after 1 April 2017 will be taxed for the first year based on CO2 emissions, then a standard rate will apply for the years thereafter.

As Which? explains, the Autumn Budget 2018/19 revealed that tax rates for cars, vans and motorbikes will increase in line with the Retail Price Index from 1 April 2019.

Are there any exceptions?

Money Advice Service notes that some drivers will be exempt from paying car tax, including:

  • Owners of brand new cars that produce 0g of CO2 emissions and cost less than £40,000.
  • Owners of cars registered between 1 March 2001 and 1 April 2017 that produce 100g or less CO2 per km driven.
  • Owners of cars over 40 years old, classed as 'historic vehicles.'

If you have a disability, you may not have to pay car tax if:

  • You own an invalid carriage, such as a mobility scooter.
  • Receive War Pensioners' Mobility Supplement.
  • Are entitled to the higher rate of the mobility component of Disability Living Allowance.

Electric cars and certain vehicles used for agricultural purposes do not need to be taxed, either - find more information here.

How do I tax my vehicle?

You can tax your car online through the website. You can pay using a debit or credit card, or through Direct Debit and will need a reference number from:

  • A recent reminder (V11) from the DVLA.
  • Your car's log book (V5C) provided it's in your name.
  • The 'new keeper's details' slip (VC5/2) from the car's log book if you've just bought it.

Even if you're exempt from paying tax, you still need to apply for it.

Does car tax automatically renew?

If you've opted to pay for your tax through Direct Debit, it'll renew automatically when it's due to expire. You'll receive an email or letter telling you when the payments will be taken out of your account.

Can car tax be transferred?

Car tax cannot be transferred between cars. So, if you're buying a used car, this means you have to sort out tax before you can drive it, as well as car insurance.

On the other hand, if you're the one selling a car, you're able to claim a refund for any full months remaining on your car tax. You'll receive this automatically once you've returned the selling or transferring or a vehicle part of the log book to the DVLA. Learn more on how to cancel car tax.

If you're taking a car off the road and want to stop taxing and insuring it, you need to make what's known as a Statutory Off Road Notification (SORN). You can do this online, by phone or post.

Can you tax a car with no MOT?

No, you need a valid MOT and car insurance to tax your car and drive or park it on public roads. Driving without tax is a punishable offence, but more serious is getting caught driving a car that's declared SORN

What cars are cheap to tax?

Choosing a car that's cheap to tax could save you hundreds - if not thousands - of pounds during the time you own it. Buy a Car has listed these 10 affordable models to tax (future diesel tax changes could impact these prices):

  • Volkswagen up!
  • Dacia Sandero Stepway
  • Vauxhall Astra
  • Citroen C4 Cactus
  • Lexus IS
  • Fiat Panda
  • Ford Fiesta
  • Nissan Qashqai
  • Vauxhall Insignia
  • Mercedes C-Class

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