How does road tax work?

Confused by road tax? Check out our comprehensive guide to find out everything you need to know about car tax and how much you'll be paying.

Now we know you’re probably not a fan of the word ‘tax’, but it is important at the end of the day. Road tax especially, because without it, the government will be on your back.

What is road tax?

Road tax, also known as Vehicle Excise Duty (VED), is annual government taxation that is payable by anyone that has a roadworthy vehicle. Although, the amount that you pay for road tax will depend on your vehicle’s CO2 emissions. The only way around not paying for it is if you had a very eco-friendly car that falls into one of the tax-free brackets.

We’re all more than likely familiar with road tax, some of us probably paying more than others, but it has to be paid if you want your car on the road. It’s as simple as that.

Road tax has been around for donkeys for years now since 1888 to be exact. As you’d expect, car tax rates rose again back in April last year, with electric cars remaining exempt too. Below we’re going to lay everything out for you.

What does road tax pay for?

Most people generally tend to think that road tax gets spent on roads, but they couldn’t be more wrong. Road tax has nothing to do with the roads. Up until the 1930s it was, but after that, it went into a pot and the government would spend it wherever they needed it most.

Essentially, it was impossible to know where the money actually ended up, and it still is to be fair. Road tax pays for everything and nothing all at the same time. The government basically looks at what needs to be paid for on a national and local level and then goes from there on how they choose to spend it.

So, who pays for the roads?

Well, because the government allocates the budget and it is then the responsibility of the Department for Transport and local councils to maintain the upkeep of the roads. When you see that pothole on the road that just keeps getting bigger and bigger, just remember that is the council’s problem.

How does it work?

How much you end up paying for your road tax, will depend on the car that you drive. For example, if your car was made before 2001, then your road tax will be calculated based on your engine size. After 2001, it will be based on your CO2 emissions.

Just to make things even more complicated, some cars will pay a different amount for the first year after manufacture. Luckily though, the majority of cars that you’ll probably be thinking about getting may have an eco-friendly engine and so should be in a low tax bracket. Or even better, you might even find that you don’t need to pay anything if you have an eco model like the Ford Ecoboost.

Then just to throw a spanner in the works even more, if your car cost more than £40,000 when bought new (after April 2021), you’ll have to pay an extra £335 per year for five years on top of the standard rate! Zero emissions vehicles are exempt from this rule. It’s crazy, isn’t it?

What if you don’t pay your road tax?

It’s not like if you don’t pay, they’ll take your car away, but you will receive a letter in the post along with an £80 fine. Is it worth it? If you still don’t pay, then you probably know what’s coming next. Your fine could rise to a hefty £1,000 and you could have court fees on top of that as well.

If you sell your car you don’t need to worry about the road tax. It doesn’t transfer over to the new owner and you’ll get a refund for any whole months that you’ve paid for and not used. If you do sell your car, don’t forget to tell the DVLA… They need to know.

Is there a catch?

So far so good on the road tax front, wouldn’t you agree? Here’s the catch. If you’re transferring ownership of your car, then the previous owner will get a refund on any outstanding road tax. This refund is calculated from the beginning of the next month.

What about the new owner? Well, the new owner will have to start from scratch and tax the car from the start, Their bill would be calculated from the beginning of the current month, and jobs a gooden!

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