Car Insurance

A guide to car tax

Are you thinking about buying a new (or new-to-you) car? Or maybe you’re worried about changes to car tax that have come into effect this year. Read on to find out what you need to know about what car tax you’ll need to pay.

By Remy Maisel

Car tax, or vehicle excise duty (VED) is the tax you must pay on a motor vehicle with wheels (that includes cars, vans, and motorcycles) to use it on a public road. 

That’s why people sometimes refer to it as ‘road tax’, but that’s not what it’s officially called – because not all road users (like cyclists, pedestrians, or horse riders) pay it. 

Why do I have to pay car tax?

Many people believe, partly because it’s known as road tax, that car tax pays for our roads – and often argue that other road users, including cyclists, should pay it too. And while this was true in the past, car tax doesn’t fund our roads now, the government does. 

Instead, VED is paid into a central government fund, just like income tax, so it’s hard to say exactly what you’re funding when you pay it – but it goes to essential things like infrastructure works and rubbish collection 1

How much does it cost to tax a car?

There’s no simple answer to this question, but generally in the first year of ownership, you’ll pay tax based on the car’s CO2 emissions. The fee ranges from £0-£2,175 per year. 

What you pay for car tax individually depends on several different factors, including how environmentally friendly the car is, what type of fuel it runs on, the engine size, whether the car is ‘historic’, and even whether you have a disability. The rates also differ in the first year of registering the car.

Diesel cars that don’t meet the Read Driving Emissions 2 (RDE2) standard for nitrogen oxide emissions are taxed at a higher rate. The car manufacturer can tell you if your car meets the standard or not. 

If your car is powered by bioethanol, liquid petroleum, or is a hybrid, you’ll pay different rates. Pure battery electric vehicles are exempt from car tax (you pay £0), and alternative fuel cars are subject to lower tax rates in the second year 2

Car tax rates when you first register your car 

CO2 emissions g/km

Diesel cars that meet the RDE2 standard and petrol cars

All other diesel cars

Alternative fuel cars

0

£0

£0

£0

1-50

£10

£25

£0

51-75

£25

£110

£15

76-90

£110

£135

£100

91-100

£135

£155

£125

101-110

£155

£175

£145

111-130

£175

£215

£165

131-150

£215

£540

£205

151-170

£540

£870

£530

171-190

£870

£1,305

£860

191-225

£1,305

£1,850

£1,295

226-255

£1,850

£2,175

£1,840

Over 255

£2,175

£2,175

£2,165

Car tax rates after the first year

Fuel type

Annual payment

Annual payment by Direct Debit

12 monthly payments by Direct Debit

Single 6 month payment

Single 6 month payment by Direct Debit

Petrol or diesel

£150

£150

£157.50

£82.50

£78.75

Electric

£0

N/A

N/A

£0

N/A

Alternative

£140

£140

£147

£77.00

£73.50

These rates are accurate as of September 2020. Please check the government website for the most up-to-date information.

How are high-end new or second-hand cars affected by car tax?

If you buy a car priced above £40,000, you’ll pay an extra £325 in car tax for five years from the second time the car is taxed (unless you have a zero-emission vehicle). After the five-year period ends, you pay the standard rate as listed in the table above. 

For example, if you bought a petrol car worth £75,000 with a £110 tax rate, you’d pay £110 the first year and then £435 in tax (£110 + £325) for the next five years. 

This also applies to second-hand cars, and to new cars where discounts have been applied – so be sure you know how much the car you’re buying originally cost or you could get caught out.

How do I tax my car?

You can tax your car online using the government’s website. You’ll need a reference number from a recent reminder (V11) or warning letter from the DVLA, your vehicle log book (V5C) which must be in your name, and the green ‘new keeper’ slip if you’ve just bought it. 

You’re required to tax your car even if you don’t owe any money 3. If you don’t know whether a car is taxed, you can also check this online by entering the number plate of the car. 

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