Car tax: everything you need to know about vehicle excise duty

There are several taxes you need to know about to legally drive your car. One of the most important is vehicle excise duty, often abbreviated to ‘VED’. 

Having so many taxes can be confusing, so we’ve gathered all the information you need to know to make sense of it all right here. 

So: read on to find out what vehicle excise duty is, which vehicles it covers and how you’re supposed to pay. 

What is vehicle excise duty (VED)? 

Vehicle excise duty is a tax paid annually by drivers of vehicles that are used (or parked) on public roads. The tax covers the whole of the United Kingdom (that’s England, Wales, Scotland and Northern Ireland). 

The tax covers cars, light goods vehicles, heavy goods vehicles and motorcycles, and was introduced in its current form in 2001 as part of a push to reduce pollutants being released into the atmosphere. 

Despite often being referred to as ‘ road tax’, VED isn’t a tax 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.

While many of us aren’t a fan of taxes, VED brings in significant money for the government. According to the House of Commons library, the tax brought in £7.4 billion in 2022/23. This figure is predicted to rise to £9.4 billion by 2027/28. 

As of 2015’s budget, which was introduced by then-chancellor George Osborne and implemented in 2020 by current prime minister Rishi Sunak, all money raised through VED goes back into maintaining the upkeep of the UK road system. 

Further changes came in 2020, which were brought in to increase the appeal of electric vehicle ownership. VED was uprated in line with the retail prices index (RPI) for cars, vans, motorcycles and motorcycle trade licences, and switched from using the NEDC emissions scale to the WLTP system to establish tax bands. You can see where your car might fall in the table further down the page. 

How is vehicle excise duty calculated? 

Since 1999, VED is calculated according to the CO2 output of your vehicle. Vehicles emitting more pollutants cost more to tax, as part of efforts to persuade drivers to consider buying cleaner vehicles.

Cars registered from 1 March 2001 to 31 March 2017 are taxed based on their CO2 emissions. Cars registered on or after 1 April 2017 pay a first-year figure according to its emissions. This will, of course, be different for every car. 

For cars registered before 1 March 2001, then the engine size in cubic centimetres (cc) is what’s important. Cars with engines equal to or smaller in capacity than 1549cc (roughly equivalent to 1.5 litres) cost £170 a year, assuming they pay up front for 12 months. Meanwhile, cars with engines larger than 1549cc cost £280 a year.

All cars pay the same flat rate from the second year and beyond, but cars with a list price of more than £40,000 pay a premium, called ‘expensive car supplement’, from years two to six of registration. 

This additional cost does not apply to electric vehicles, and this exemption is set to be in place until 31 March 2025. 

Other factors that can affect how much you pay include the type of car you own, and where it was first registered. 

Is my car exempt from VED?

Some cars are exempt from the VED tax. Perhaps most notably, drivers of electric cars do not need to pay. This also includes cars powered by a hydrogen fuel cell. However, drivers of hybrid vehicles must pay. 

Historic vehicles – that’s cars which were made before 1 January 1983 – are also not required to pay VED, so, luckily, your Ferrari 250 GTO is safe to drive on the road without further pennies. 

Cars used to transport disabled passengers – referred to as disabled passenger vehicles also do not have to pay VED. You can also claim a disability exemption if you’re disabled but you drive your car, but this can only be used on one vehicle at a time. 

VED also does not apply to mobility vehicles and powered wheelchairs, so long as they have a maximum speed of 8mph on the road and are limited to 4mph on pavements. 

Outside of standard passenger cars, vehicles that are used for agriculture, horticulture and forestry are also VED exempt. This includes tractors, light agricultural vehicles and ‘limited use’ vehicles. These aren’t allowed to drive more than 1.5km on a public road. 

Steam vehicles are also exempt. Great news for the Doble Model E owners club.

If you own a car but you don’t drive it on public roads, then you’re also exempt, although you’ll have to declare it to the DVLA. This is called a Statutory Off Road Notification, or SORN, and you can declare it here.

Be aware that if you don’t let the DVLA know that you want the car registered as off the roads, you’ll be liable for road tax even if the car doesn’t move. Conversely, if you want to take the vehicle back onto public roads, you’ll need to pay the appropriate amount of VED first.

How do I pay for VED? 

First, use our helpful guide to find out how much you need to pay. You can find this further down the page. Once you’ve done that, you can pay your VED tax in a variety of ways.

Do pay online, head to https://www.gov.uk/vehicle-tax. You’ll need either a credit or debit card, plus one or more of the following documents to hand: 

– The V11 reminder letter that was sent to you when your existing tax was running out

– The car’s V5C registration document, which must be in your name

– The V5C/2 new keeper supplement if you’ve just bought the car

– The ‘last chance’ warning letter sent to you if you’re about to end up on the wrong side of the law for not either paying or declaring a SORN

If you don’t want to pay online, you can pay directly over the phone by calling 0300 123 4321. Be warned, though, that this line is not free. You can read about the charges here. 

You can also pay at any post office that can process vehicle tax. You’ll need to bring one of the following:

The V11 reminder letter that was sent to you when your existing tax was running out

– The car’s V5C registration document, which must be in your name

– The V5C/2 new keeper supplement if you’ve just bought the car

You may also need your MOT test certificate, valid for the start of the new tax period, and a valid Reduced Pollution Certificate if the vehicle has been modified to cut its emissions. In Northern Ireland, you’ll need to bring your insurance certificate or cover note.

It’s important to note that the exact amount due can vary slightly, depending on whether you pay for six months or 12 months, and whether you pay all at once or in instalments. You can see a full breakdown of the charges by going to the DVLA website.

Do I need to display a tax disk nowadays? 

Unlike in the past, you don’t need to wait for a tax disc to be sent for display in the vehicle’s window. The tax disc system was abolished in 2014. 

However, it’s important to note that VED no longer transfers to a new owner when you sell or buy a car. The new owner will need to tax the car afresh and they’ll need to do so before they drive the car.

VED costs for petrol and diesel vehicles

VED costs for alternative fuel vehicles

If your car is powered by an alternative fuelling system, then the charges are slightly different but based on the same premise. Alternative-fuel cars include hybrids and vehicles that run on biofuel or a variant of gas, such as LPG or CNG.

Once again, the costs vary slightly depending on how you want to pay.

Taxing your car for the first time 

If your car is brand new and you’re taxing it for the first time, then the costs are slightly different again. The below prices are only applicable the first time a car is taxed. After that, it follows the tables above.

The system rewards drivers of new, low-emitting cars with a lower-than-usual payment for the first year, but it smacks high-emitting vehicles with a fairly stiff initial charge.

The prices are for 12 months and are payable only in a single payment. You can see further details here.

Petrol, diesel and alternative-fuel vehicles, first year only

Goods vehicles and motorbikes have their own VED system, which you can find more about here.

VED cost examples

Volkswagen ID.3

Price when new: £29,620, CO2 emissions: 0g/km

First year tax rate after 1st April 2020: £0

Tax rate after first year of ownership: £0

Tax cost across first three years: £0

Audi Q4 E-Tron

Price when new: £41,325, CO2 emissions: 0g/km

First year tax rate after 1st April 2020: £0

Tax rate after first year of ownership: £0, plus £0 ‘expensive car’ fee

Tax cost across first three years: £0

Mercedes-Benz E 300 de AMG Line

Price when new: £50,164.99, CO2 emissions: 35g/km

First year tax rate after 1st April 2020: £0

Tax rate after first year of ownership: £635 (including £490 premium fee)

Tax across first three years: £1415

Ford Mustang 5.0 V8 GT Convertible 

Price when new £44,930, CO2 emissions: 274g/km

First year tax rate after 1st April 2020: £2245

Tax rate after first year of ownership: £645, (including £490 premium fee)

Tax across first three years: £3535

Ferrari Portofino M

Price when new: £166,180, CO2 emissions: 224g/km

First year tax rate after 1st April 2017: £1345

Tax rate after first year of ownership: £645 (including £490 premium fee)

Tax across first three years: £2635