By law, all new and used cars in the UK must have valid car tax, also known as Vehicle Excise Duty (VED). However, the level of taxation can vary widely from vehicle to vehicle, depending on how eco-friendly it is. Factors such as the level of carbon dioxide emissions and engine size play a large role in determining how your car is taxed and how much you must pay each year. Older vehicles (registered prior to March 2001) and newer vehicles (March 2001 onwards) are taxed according to different criteria, as explained below.
Cars registered on or after March 1 2001
There are 13 tax bands (A-M) that cars and vans are assigned to, with the banding directly linked to the level of carbon dioxide emissions that the vehicle outputs. Cars which emit under 100g/km of carbon dioxide are deemed to be the most environmentally friendly and fall into the lowest tax band (A), which is currently free for each 12 month period. There is no discrimination between petrol and diesel engine vehicles, or whether vehicles are privately owned or used within the motor trade; the banding is determined entirely on emission levels.
Cars which emit from 101-110 g/km CO2 (Band B) or 111-120 g/km CO2 (Band C) are also cheap to tax, but there is a big jump from Band D upwards. Cars which fall into Band D are charged at £110 per annum, while the highest emitting vehicles (over 255 g/km CO2) fall into Band M, which costs £500 per year.
Note that there are also additional differences in taxation levels for vehicles in their first year of ownership. Owners of cars which fall in bands B-D face no charge for the first 12 months, while those owning cars in the highest bands (H-M) have a stiff rise in first year cost, with Band M attracting a first year premium of £1,090.
Cars registered prior to March 2001
The tax banding for older vehicles is much less delineated; all cars fall into one of two categories and attract tax accordingly. Vehicles which have an engine size of up to 1549cc pay the lower rate (currently £145), while vehicles over that threshold pay the higher rate (£230). There are no other factors which alter the level of taxation on the vehicle itself.
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Other factors affecting car tax costs
There are other factors which can vary your car tax rate. If your (post March 1st 2001) vehicle uses alternative fuel, there is a £10 reduction for each band. Car owners with a disability may also be exempt from car tax – this specifically applies to those with an invalid carriage, those receiving War Pensioner’s Mobility Supplement and those who receive the higher rate of the Disability Living Allowance’s mobility component.
Owners can choose to pay car tax either in a single lump sum, by two 6 monthly instalments or by a monthly payment plan – note that paying in multiple parts attracts a slightly raised premium compared with those making a single payment.
New taxation changes
Since October 1st 2014, there was no longer a need to display the old style tax discs, but all owners must apply (and pay) for vehicle tax prior to driving it; this also includes traders who must ensure a vehicle is taxed before driving on trade plates. Drivers must of course also have a valid insurance policy. All taxation details are stored by the DVLA on a new electronic register, which is accessible to the police and other relevant authorities. Car tax can also no longer be passed from owner to owner when a vehicle changes hands.