Car tax bands explained

The price you pay to tax your car can be determined by any number of nuances – its engine size, the year it was built, your circumstances… then factor in that various tax systems are running parallel to each other and it is easy to see why you need to be a genius to get your head around things. 

2021-2022 Road Tax rates, VED bands and costs following March 2021 Budget

That is until now because here this article explains exactly how each tax system works, which applies to you and how you can buy a car that pays no tax at all – now that is music to your ears. So continue below for our guide to road tax and how much you’ll pay for it. 

Road tax is, fun, isn’t it… The minute you know what you pay for your car every year, the Chancellor comes along and changes it. There’s no clear way to get cheap road tax either, high polluting older cars can be cheap to tax while newer cars that produce less CO2 cost more. 

What will the road tax (VED) be on my car?

Despite appearances, knowing how much your car pays in tax is relatively simple – it’s all down to when your car was registered – and we explain the different systems and when they apply, below. 

The thing to remember is that the tax system does not change retrospectively, if your car costs £30 to tax now, it won’t go up to £300 at the next budget, which is a relief. That being said, it may go up a little in line with inflation that currently sits at two per cent. In other words, it may go up a few pounds every year, but certainly not by hundreds of pounds. 

2021-2022 budget, updated on 21 April 2021

On the 1st of April every year, the chancellor announces new road tax rates – some of these will be major and affect the cars that are built that year, others will be a more minor adjustment designed to bring an older tax system in line with inflation. 

We got a bit of both in April 2021. A highlight – or lowlight depending on your perspective – was the 3% increase in the standard rate of tax which means that the tax you pay after year one has increased from £150 to £155. 

For that matter, first-year road tax has also been adjusted to clobber high-polluting cars. Road tax now ranges from 

£115 ( for cars producing 76-90g/km) to £555 (151-170g/km). Low polluting cars, meanwhile – cars that produce 0-75g/km of CO2 – pay the same tax they did in 2020, ranging from zero to £25.

The hits get bigger the more CO2s you produce. Cars in the 171-190g/km pay £895 (was £870), those that produce 191-225g/km see their tax rise by £30 to £1335 and you’ll pay an extra £40 to tax a car that produces CO2s of 226-255g/km (now £1895). 

But the heaviest hit is reserved for cars that sit in the over 255g/km group – like the Audi R8 – they now pay a first-year tax of £2245 – £70 more than before. 

Premium car tax, which applies to any car with a list price of £40,000 or more (such as the Mercedes S-Class) – has also increased from £325 to £335 – which is paid for the first five years after the car’s registration. 

Cars with a list price of over £40,000 when new pay an additional rate of £335 per year on top of the standard rate, for 5 years. Alternative fuelled vehicles, including hybrids, bioethanol and liquid petroleum gas, pay £150 per annum.

Budget 2018 announced that new diesel vehicles registered after 1 April 2018 that do not meet the real driving emission step 2 (RDE2) standard will be charged a supplement on their First Year Rate to the effect of moving up by one Vehicle Excise Duty band.

Brand new cars that are free to tax

There’s still a way to be exempt from road tax altogether – buy an electric car. In some respects, you’ll be a pioneer – electric cars still make the most sense if you have somewhere you can charge one at home. Not just because it is more convenient but also because you can charge the car as you sleep, reaping the rewards of lovely off-peak electricity charges. 

If you’re giving the idea genuine consideration, bear in mind that electric cars are at their least efficient on the motorway and best in town. If you have a regular long drive of more than 100 miles, we’d also advise checking what kind of charging infrastructure you can fall back on – one lonely charger (that’s already in use at a service station) won’t cut it if you’re in a rush to get somewhere.

While EVs are still a relative rarity, sales are growing quickly and all the big manufacturers offer at least one electric model. In the UK, petrol and diesel new car sales are set to be banned in 2030.

Cars registered between 2001 and 2017

Not too long ago, the tax system was a lot simpler, cars were charged according to their CO2s and you paid the same rate every year. Sure, there were parallel charging structures – one for petrol and types of diesel, the other for ‘alternatively’ fuelled cars – but that was as complicated as it got.

It was less stringent than the current system so cars that produced 100g/km or less qualified for free road tax – so a tiny city car would pay no more than an electric model like the Nissan Leaf. Even gas guzzlers got off comparatively lightly, paying no more than £580 a year, slightly more if you decided to break up the payment in monthly instalments. 

What pre-March 2017 cars qualify for free road tax?

If you’re looking for cheap motoring and don’t mind buying a car that’s several years old, you could do a lot worse than buying a car that was registered before March 2017 and produced CO2 emissions of less than 100g/km – a car like the Citroen C1. 

It’ll qualify for free road tax thanks to its tiny 1.0-litre engine and, for the same reason, it’ll cost buttons to fuel, insure and it won’t be subject to city tariffs like UK’s ULEZ. It’s an ideal car if you’ve just passed your test. 

How did the system change in 2017?

From 1 April 2017, all new cars are taxed against three new VED bands – zero, standard and premium – with taxation calculated on a combination of emissions and the list price of the vehicle. 

This means that only cars that emit zero CO2 and cost less than £40,000 qualify for zero VED. The majority of petrol and diesel cars will pay a standard rate of £140 a year, while hybrids will pay slightly less, £130 per year.

As well as new VED bands, the government introduced new first-year rates, which are calculated on the CO2 emission levels. Most family car buyers pay between £100 – £160 for the first year rate, while the most polluting cars (255g/km+ of CO2) pay as much as £2000. All cars registered before April 1 2017 continue to be taxed against the old CO2 emission levels. 

Hybrid buyers were among the hardest hit by the changes, having to pay road tax for the first time. Not quite as much as petrol or diesel cars, instead, but a new first-year rate was introduced and there’s an ongoing yearly charge after that.

Do disabled drivers get free road tax?

You can get a 50% reduction in vehicle tax if you get the PIP standard rate mobility component. The vehicle should be registered in the disabled person’s name or their nominated driver’s name. You cannot get a reduction for getting the DLA lower rate mobility component.

To apply, you will need:

  • a letter or statement from the Department for Work and Pensions that shows your PIP rate and the dates you’re getting it
  • the vehicle logbook (V5C)
  • a V10 form
  • an original MOT or GVT certificate (if your vehicle needs one)
  • a cheque or payable order (made out to ‘DVLA, Swansea’) for 50% of the full rate of car tax for the vehicle
  • an insurance certificate or cover note (if you live in Northern Ireland)

Taking your car off the road?

If you are not going to use your car for a long period (anything longer than 6 months) you can use a Statutory Off Road Notification (SORN) to avoid paying road tax while you’re not using it. However, off the road means – you can’t declare SORN unless you have off-street parking, a garage, or some other kind of storage that’s away from the public highway. 

Even if a car is parked in the road for a long period, it needs to have road tax to be parked there – ergo it also has to have anMoT and insurance to get tax in the first place.

You can make a SORN declaration at any time if you have the V5C registration document, or the more common way is to declare SORN when the vehicle’s road tax reminder comes through the post from the DVLA. Then you can use the 16-digit renewal code to declare SORN. Once the vehicle has a SORN, you’ll get written confirmation in the post, but you won’t get any annual reminders about the vehicle’s SORN status.

If you declare SORN while there’s time left on the current road tax, you can reclaim the outstanding amount and get it refunded, although it will only be for a full month’s tax, so from the first of the month after you declare a SORN.

When you want to put your vehicle back on the road, simply tax the vehicle and your SORN is cancelled automatically. The only time you can drive a vehicle that has been SORNed is if you’re going to a pre-booked MoT appointment or other vehicle tests. Drive it on the road for any other reason, and you could face a fine of up to £2,500.

If you’re making a SORN declaration for a vehicle that isn’t yours (if the owner has passed away, for example), then you need to apply for SORN by post using form V890 and filling out the relevant information, along with the information needed from the vehicle’s V5C registration document.

How to pay your car tax?

Fortunately, the process of paying for your VED is an easy one. The easiest way to do this is on the Gov.UK website, where there’s a page entitled ‘Tax your vehicle, where you follow a straightforward step-by-step process, most likely using a reference number from a V11 reminder letter you’ve been sent by the DVLA. You can also pay car tax at a Post Office if you take your V5C with you.

Classic car road tax:

You may have heard that classic cars are exempt from road tax. This is true, although if you own a classic car, it’s not simply a case of ignoring the DVLA reminders and going on your merry way. You have to apply for road tax exemption, and depending on the age of your classic car, there are still legal requirements you need to meet.

To qualify for the exemption, a car has to be 40 years old or more. This is a rolling age, so more cars are eligible each year.

Owners need to apply for exemption before they can wave goodbye to paying road tax. You can do this at the Post Office as if you’re paying road tax, so you’ll need the car’s V5C registration document, a road tax reminder (if you have one), a valid MoT, and proof of insurance. The Post Office will then send your V5C off to the DVLA, who will then amend your V5C and send you an updated logbook within 10 working days. In the meantime, you can still use your classic car.

There are a few more bits of legislation regarding classic cars, depending on the date they were registered:

Classic cars registered from 1 January 1960: If you’ve applied for road tax exemption, you still need a valid annual MoT and insurance.

Classic cars registered before 1 January 1960: All you need is valid insurance, there’s no road tax to pay, and no MoT is needed either.

Whatever car you are looking at, whether you want to know when your road tax is due, or if you want to find out about a potential used car’s tax status and cost, then you can do exactly that at the Government website.

Is there a catch to the Vehicle Excise Duty regime?

So far, so good for the road tax system but as often seems to be the case, there is a catch. The problem that’s getting motorists riled centres around the refund you get on outstanding road tax when you sell your car. When ownership of a vehicle is transferred, the previous owner gets a refund on any outstanding road tax, but that refund is calculated from the beginning of the next month. The new owner, on the other hand, has to tax the car anew and their bill is calculated from the beginning of the current month.

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