Car tax: what you need to know about Vehicle Excise Duty

How much do you have to pay to tax your car? From today, 1 April, the amount could change because the government has overhauled the Vehicle Excise Duty system to encourage buyers to choose zero- and low-emission vehicles. 

How much you’ll pay depends on what kind of car you have, how old it is, and how you want to pay. This article should help you make sense of it all.

Vehicle Excise Duty, known as VED, is a tax levied by the government on every vehicle on UK public roads and is collected by the Driver and Vehicle Licensing Agency (DVLA). It’s a major source of revenue for the government, totalling billions of pounds each year, which goes into the central coffers of the exchequer. 

Although VED is often referred to as road tax, this is misleading. The tax isn’t on the road: it’s on the vehicles that use it. Road tax was abolished in the 1930s and the cost of maintaining the UK’s roads is currently covered by general taxation, not specifically VED.

However, in his 2015 budget, then-chancellor George Osborne announced that a new road fund would be set up whereby all funds raised through VED will go into the building and upkeep of the UK’s road system. This new system was implemented by Rishi Sunak in his 2020 budget, but scheduled road works are likely to be pushed back as a result of the coronavirus outbreak.

The VED system based on vehicle emissions was introduced in 2001 as part of a push to reduce pollutants being released into the atmosphere. Vehicles emitting more pollutants cost more to tax, as part of efforts to persuade drivers to consider buying cleaner vehicles.

Changes to system in April mean significant differences for new car buyers.

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