Car Tax Around the World

The UK is not unusual in coming up with some way of taxing people who own cars. Most European countries have systems similar to the UK in that the rate of tax is dependent on the carbon dioxide emissions. Other countries, such as Spain and Norway, have an initial tax paid when the car is first registered, and a smaller annual fee. The system is perhaps most complicated in the United States, where the system varies from state to state, and even between counties and municipalities in the same state. Although rates vary across the world, the idea that road users should pay money into the government coffers to both offset the cost of using the roads and their carbon footprint is fairly standard.

DVLA Revenue

The government estimates that for the year ended April 2020, Vehicle Excise Duty raises around £6.5 billion for government funds. There are around 37.5 million vehicles on the road which qualify to pay car tax. This £6.5 billion is equivalent to about £230 for every household in the UK. It might sound like a lot of money, but car tax only represents 0.8% of all tax collected by the UK government. Given that back in March 2020 the Chancellor announced plans for road building projects worth £27 billion over the next five years, in addition to around £5 billion spent annually on simply maintaining roads, in general, the amount spent on UK roads outstrips the amount of road tax paid by motorists. Some of these large projects, such as building new stretches of motorway or a by-pass around a busy market town are paid for and managed by central government, or the devolved parliaments in Scotland, Wales and Northern Ireland. Many of the smaller projects which affect our day to day motoring are managed by local Councils around the UK, using money they receive in government grants. Local councils are responsible for things such as managing car parks, fixing potholes, resurfacing roads or reconfiguring roads in an accident blackspot. Local councils also supplement their budget for local road repairs by charging for parking on street or in local council car parks. They may also charge for resident parking permits in very busy areas of town.

Vehicles Exempt From Road Tax

Most drivers will have no option but to pay for their road tax, as the list of vehicles which is exempt is relatively small. It’s important to remember though that even if you do qualify for an exemption you have to go online and apply for it; it doesn’t happen automatically. The main classes of cars which are exempt from paying Vehicle Excise Duty are:

• Classics – any vehicle which is more than 40 years old is exempt from road tax. This doesn’t just apply to your classic 1960s sports car; it applies equally to buses, vans and any other vehicles too. There is no upper limit on this entitlement and the entitlement kicks in on the 1st April after your car’s 40th birthday.
• Electric vehicles – vehicles which are plug-in or run entirely on battery power, are exempt. A hybrid car which uses a combination of electric power with a petrol engine as a back-up qualifies for a reduced rate. This entitlement is usually applied automatically as the government database links the registration number to the type of engine.
• Emergency services vehicles – police cars, ambulances and fire engines are exempt from paying road tax, whatever their age.
• Road gritters and snow ploughs, along with other road maintenance vehicles don’t have to pay road tax.
• Other exemptions apply to small, specific groups of vehicles such as those imported to the UK by foreign armed forces, or certain agricultural vehicles which are only used on fields and don’t travel on the public roads.
• People with disabilities – if you qualify for the higher mobility element of the Disability Living Allowance, or get the enhanced mobility rate of PIP, then your car might qualify to be exempt from car tax too. As with other exemptions you will have to tell the DVLA that you think you may be exempt, providing proof. Separate parts of the government system do not “talk” to each other and swap information so the link is not made automatically between the DVLA and the Benefits Agency.
• Mobility scooters – even though these types of vehicles can be used on the public road, they are exempt from car tax as long as they have a maximum speed of no more than 8 miles per hour. They don’t generally have a registration plate, and won’t require an MOT or insurance either.

Classic Car Exemption

One of the main groups of vehicles which don’t need car tax are cars over 40 years old. Most vehicles will qualify automatically and it’s just a case of logging into the government website and stating that your car is now celebrating its 40th birthday. This process is sometimes known as putting a vehicle into the historic tax class. If you are unsure of the process, a good place to look is on specialist websites and forums for classic car enthusiasts where there is lots of information about classic cars in general, or advice specific to one particular brand.

Most cars which are 40 or more years old and are exempt from road tax are also exempt from MOT tests. This doesn’t apply if your car has been totally rebuilt around an existing shell however. Although your car might not need a MOT test, it’s still your responsibility as a driver to make sure that it is roadworthy and safe to be in traffic. Many drivers choose to continue with MOTs as a way of making sure their cars come up to scratch. There is no exemption to insurance for classic car owners. It’s usually best to buy your insurance through a specialist broker and again the owners clubs and forums can point you in the right direction for specialist classic car insurance.

SORN and Road Tax

Cars which are not being used on the public roads don’t need car tax. However, you can’t just decide that your car is off the road and not pay your tax. The car has to be registered through the DVLA as off the road, known as declaring SORN. SORN stands for Statutory Off Road Notification.

Cars can be registered as SORN if it’s completely off the road and not being used. The car could be in a garage, parked on a driveway or elsewhere on private land. You can’t declare a car SORN if it’s parked on a public road. You can’t just declare your car as SORN when you’re off on holiday for a few weeks and don’t want to pay tax for the period you are away. There should be a good reason why the car is off the road, usually because it’s needing repair, or it’s failed its MOT.

The easiest way to declare SORN is through the government website. Fill in the form on the government website. You’ll need either the 11-digit number from the vehicle’s V5 form, also known as the log book. If you’ve already received a reminder in the post that your car tax is due, you can use this reference number instead. The DVLA will automatically refund any car tax for the months you have paid in advance if you tell them you are taking your car off the road.

Usually, people take a car off the road because they are working on it or doing it up. Once the work has finished and you want to get your car on the road again, simply go back to the government website and tax it again and make sure that it is insured before taking it out on the roads. You might also need to get a MOT test, depending on how old the car is, and whether or not the previous MOT has expired.

Calculating Road Tax

There are currently two systems operating for calculating road tax, depending on the date on which your car was first registered. For cars registered before 1st April 2017, the calculation is made on the capacity of the vehicle’s engine. Any vehicles registered after that date have their tax calculated on the amount of carbon dioxide which they emit. Having two systems in operation is confusing. There are however lots of calculators online which will help you work out what band applies to your car. Just enter the registration number and the website will pull details of the car from the DVLA database. This will tell you exactly how much car tax is due. If you’re substantially altered your car by changing the engine or adding in other components to improve its performance, this could also affect how much you should be paying in road tax too.

Cars Registered Before 2001

If your car is older than a 2001 registration, but not old enough to qualify as a “classic car” under DVLA rule, then the calculation of car tax is purely on the capacity of the engine. There are just two standard rates. Any vehicle with an engine capacity of less than 1549cc pays £140. Vehicles with larger engines pay £220. Any cars registered before 1st April 1980 is now designated to have historical vehicle status. This date changes at the beginning of April each year. If your car was registered at some other point in 1980, you will have to wait until 1st April 2021 to apply for your exemption.

Cars Registered Before 1 April 2017

If your car was first registered before 1st April 2017, but after the previous cut-off date of 2001, then the rate of car tax you pay will be calculated on the theoretical carbon dioxide emissions per kilometre. This is where the system starts to get a lot more complex. There are 13 separate bands, all with a different letter of the alphabet. The very lowest carbon dioxide creating cars, which produce less than 100g of carbon dioxide per kilometre, are charged at a zero rate. The most polluting cars are in Band M, and pay £570 annually.

When this scheme was first introduced, there was a higher rate of car tax paid for the first year of ownership. The idea behind this was to deter people from buying a more polluting car and to consider something more eco-friendly. The first-year charge for the Band M most polluting cars was £1065, falling to £335 for a mid-range polluting car. For cars in bands A to D, there was no first-year charge at all. Given that cars first registered before 2017 have all paid their first lot of road tax, all vehicles which fall into this category are now simply charged at the standard rate for their band each year. A table showing all the different bands for road tax and the different charges for each is on the DVLA website. You don’t need to know all the information though. Unless your car has been altered from new, the DVLA website uses the information about make, model and engine type to determine the tax.

Cars Registered After 1 April 2017

2017 saw yet more changes to the car tax rules. The same 13 bands to calculate the rate of car tax remain, although the numbers within each band have been tweaked. This in particular affected hybrid cars which run on electricity power most of the time, but with the option of a petrol back-up when required. Under the previous system, owners of these cars paid no road tax at all, but the 2017 changes brought them into one of the lower charging bands.

The main changes affected people in the first year of owning their car. The “first-year rate” under the new system could be anything from £0 to £2000 depending on how polluting the vehicle is. There is also a further charge on vehicles with a list-price of over £40,000. Owners of these vehicles pay an extra £310 on top of all charges for the first five years of ownership. Again, a full list of charges is available online through the DVLA website. It’s also worth bearing in mind when you are in the dealer negotiating a deal on a new car. Remember that those extras such as metallic paint or integrated satellite navigation on a £38k car could push you past the £40k list price and into paying extra for road tax. You might be able to use this fact to negotiate a better price or package with the dealer.

Future Changes?

According to a report from the Institute of Fiscal Studies, the combined total of all motoring related taxes in the UK equates to around £750 for every adult living in the UK. However, the UK has signed up to meet ambitious climate change and emissions targets by 2050. In order to do this, the government has already announced that they intend to gradually phase out diesel cars, with petrol cars likely to follow suit. The aim is to encourage people to switch to electric vehicles rather than those using fossil fuels. That’s good news for the planet but not good news for the government’s bank balance, as tax revenues from fuel are likely to drop sharply too. Should the current car tax system remain in place too, the revenue from this will also decrease as more people choose electric cars or hybrids instead of the more polluting petrol or diesel models. As the money flowing into the government from car tax and fuel duty starts to decrease, the government will almost certainly look for other ways of plugging the gap with other forms of taxation. Could more changes to car tax be on the cards for the future? Almost certainly.

Lorries and Commercial Vehicles

There is a separate method for charging road tax on lorries, trucks, vans and commercial vehicles like coaches or mini-buses. There are seven different charging bands, and the rate which is paid is calculated on the size of the vehicle and the emissions level. Annual road tax for commercial vehicles over a year old could be anything between £160 and £1850. It is the owner of the commercial vehicle who is responsible for making sure it has the right tax and MOT. But it’s the driver who is risking points on his or her licence if they are stopped driving an untaxed or uninsured vehicle. Commercial drivers are encouraged to check online to make sure the van or HGV they are in is legal.

Motorbikes and Mopeds

Owners of motorbikes, scooters and mopeds also have to pay road tax, but at a lower rate than car or lorry users. Smaller bikes with engine capacities of under 150cc only pay £20 road tax per year. The largest bikes, with engines over 600cc, pay £91 per year. The process for taxing a bike or moped is exactly the same as it is for taxing a car or lorry and can be done online, over the phone or in person at your local Post Office.

Paying for Road Tax

Before 2014 when the system went digital, most people paid for their road tax over the counter at their local post office. A clerk would take your money, check your MOT and insurance documents and write the details on a coloured paper disc, which you then displayed in the windscreen. Now the system has gone digital, and all car tax can be paid for online. It’s a much simpler process which you can complete at any time of the day or night from the comfort of your own home.

About four weeks before your current road tax expires, a letter will arrive in the post as a reminder. You don’t have to act on it immediately, but don’t file it away to deal with later and then forget about it completely. There won’t be a second reminder, and if you drive your car on the road the day after your tax expires, you risk being stopped.

When you log into the government site to pay for your car tax, you will need the reminder letter from the DVLA with you as it has your unique reference number on it. Follow the website through step by step, entering the key information as requested. You can pay by either debit or credit card if you prefer to pay your annual car tax in one lump sum. There is also the option to spread the cost of your car tax by either paying two payments a year, or monthly by direct debit. This is a good option if you are on a budget and will struggle to pay the full amount in one go, but works out 5% more expensive overall.

If you don’t want to pay for your car tax online for whatever reason, you still have the option to take the traditional path to the Post Office and pay for your tax over the counter. You will need to take with you:

• The vehicle’s V5 form (log book), or a V62 form if you have lost the original log book
• An up to date MOT which is still valid on the day your car tax is due to begin
• Insurance – only drivers in Northern Ireland still have to show proof that the car is insured when they pay for their car tax.

Not all Post Offices offer car tax over the counter. Check on the Post Office using the branch finder function to look for the closest Post Office which offers a car tax service. There is no postal service for car tax.

The final option for paying for your car tax should you not wish to go online or go to the Post Office is to pay for it over the phone. You should have the V5 (log book) with you when you make the call, and you will need either a valid credit or debit card to make the payment with. The DVLA is only open during office hours, which isn’t convenient for all motorists.

Changing A Vehicle’s Tax Class

When vehicles are first allocated a registration number by the dealer which sells a new car, the dealer enters the key information such as the selling price and the data about carbon emissions. This information is what the government uses to work out what rate of road tax you should pay for the first year of ownership and for each year after that. If you make major alterations to your car such as swapping out the engine for a less polluting one, or qualify to be exempt from road tax because the car is being used by someone with a disability, you have to log into the DVLA website and apply to change the tax class of the vehicle. You will need to provide either proof of your disability benefit award letter, or other proof that your vehicle has been altered. You should also follow this process for cars which are over 40 years old and now qualify under the classic car exemption.

Refunds on Road Tax

Most people pay for their road tax annually in advance. In the old days of the paper tax discs, it was common practice to take the discs out of the car when you sold it, and take the disc to the Post Office for the months of tax you’d paid for upfront but hadn’t used. There is a similar process with digital tax. When you sell your car to someone else, or trade it in, the DVLA will automatically cancel the tax on the vehicle. That means two things. It means that new owners will always have to tax the car before driving it away and that refunds are processed automatically too. The DLVA will send you a refund check through the post to the name and address which was stated on the car’s V5 registration document.

There are similar processes for getting tax back for vehicles which are scrapped, stolen or written off by insurance companies after an accident. If you export your car out of the UK on a permanent basis, you might be able to claim some tax back too. If you are scrapping your car, then you must take it to an authorised treatment facility, or ATF. First, fill in the form on the government website applying to take the registration number off the vehicle you want to scrap. Take it to the ATF, and give them the log book, keeping the yellow part recording the transfer or sale. Then fill in the yellow section of the V5 and send it to the DVLA. If you don’t follow the process for scrapping a car properly, you could be fined up to £1000. Search for your nearest approved scrapyard by entering your postcode on the government website.

If you car is written off by your insurance company, they will usually take care of all of the paperwork surrounding scrapping your car. They will usually ask you to transfer ownership of the car to them first. At this point, any tax paid on the car will be transferred to you and it’s no longer your responsibility.

Of course, this all means that second hand cars can no longer be sold with a few months tax on them. When the change of ownership paperwork is sent to the DVLA, the tax will automatically be cancelled. Whatever the seller of a used car tries to tell you, it’s your responsibility as the driver to make sure that you have taxed the car before driving it.

How Would I Get Caught?

Policing has moved on a bit since the days of the paper tax disc. Back then, the police had to physically inspect your car to see whether it was taxed or not, and spot dodgy or altered tax discs too. Now, all the key information about a car such as the registered keeper, whether or not its taxed, when the MOT expires and who is registered to drive it, is held on the police database. Most police cars are linked to this database, which works on automatic number plate recognition, or ANPR. As the police drive along, the software in the car is constantly scanning car number plates, searching for any which are untaxed, uninsured or have no MOT. When the software finds a car in breach of the law, an alarm sounds in the car.

This all means that the police don’t actively have to be looking for people without car tax. All it takes is for you drive your car past a police car to be caught. Several new motorways in the UK are “smart motorways” with cameras and variable speed limits. Cameras on the overhead gantries can catch people who exceeding the speed limit, but might also be able to record when a car without car tax, insurance or MOT drives past.

There are however a large number of drivers who seem to think they can get round the system. Figures from the DVLA showed that in 2017, 1.8% of all cars on UK roads were untaxed. Police are keen to stop these drivers and prosecute, given that someone who doesn’t bother to tax their car often doesn’t bother to get a MOT or insure it either. Car tax avoidance represents a loss of around £94 million from UK government funds. Figures show that most cars which are untaxed have only been untaxed for a very short period – it’s safe to assume that there are some forgetful people out there.

Penalties for Not Having Car Tax

If you take the risk of driving without tax on your car, then there is every chance of being stopped by the police. If that happens, you will be fined £80 as a fixed penalty. If you don’t pay the fine, or challenge it through court, then the penalty could be much higher as the courts have the power to fine either £1000 or five times the annual car tax for your car, whichever is higher. You won’t get points on your licence for not paying your car tax, but may get points if there are other problems such as not having a MOT or being uninsured.

These fines only apply if you’ve simply forgotten or no bothered to tax your car. If you have declared your car as SORN and then take it out on the road, different penalties apply.

Is My Car Taxed?

The move into an online system for car tax means that anyone can check to see whether a car has tax and MOT at any time, for any reason. The DVLA – Driver and Vehicle Licensing Agency – has a function on its website where you can input a car’s registration number and find out whether it is taxed, and if so, when the current tax runs out. It will also show the car’s MOT status and will show you some basic details about the results of previous MOT tests too. Search for Vehicle Enquiry on the government website and start by entering the registration.

It’s always a good idea to check these details if you are intending to buy a car, or even if you’re unsure of when your car tax or MOT expires. There is also a function to report a car which is untaxed or which doesn’t have a MOT. This is a useful tool for reporting cars which appear to have been abandoned in your local area. Remember though that if you don’t pay your car tax, it could be one of your neighbours who is reporting you for not having tax.

Other Costs of Motoring

Car tax is just one element of the total costs for owning a car in the UK. Some of the other costs and charges which may apply to UK motorists are:

• Fuel tax – Around 60% of the cost of a litre of petrol or diesel goes straight back to the government in taxation. Tax on fuel has risen sharply over the years in an attempt to get us to use our cars less.
• MOT – cars which are three years old must have an annual MOT test to check they are roadworthy. The current cost for the test is only around £50, but the costs can be much higher if your car needs work to pass.
• Insurance – all cars driven on public roads must be insured. Costs vary hugely depending on the type of car and the risk profile of the driver.
• Road Usage Charges – compared with other countries, the UK has relatively few toll roads. The only privately operated road is the M6 toll road around Birmingham, but there are also tolls on river crossings and tunnels across the UK. London and other cities have introduced a congestion charge to deter people from driving their cars into the city centre.