Car tax, officially known as Vehicle Excise Duty (VED), is a cost that affects most motorists. Each year, tax rates are reviewed and updated, and from April 2023, vehicle tax rates increased in line with inflation for many cars, vans and motorcycles.
The Spring Budget announced changes that impact vehicle owners across the UK. Understanding how vehicle tax works can help you budget more effectively and avoid unexpected costs.
Vehicle Tax Rates for Petrol and Diesel Cars
From April 2023, vehicles registered on or after 1 April 2017 became subject to updated standard annual tax rates. Hybrid and alternative-fuel vehicles continue to benefit from slightly reduced rates compared to petrol and diesel vehicles.
Vehicles with a list price above £40,000 are also subject to an additional annual supplement for a set period after first registration.
For vehicles registered between March 2001 and April 2017, tax remains based largely on CO₂ emissions, with rates varying according to the emissions band.
Older vehicles registered before March 2001 continue to be taxed based primarily on engine size.
Understanding How Vehicle Tax Works
The amount of vehicle tax you pay depends on factors including:
- When the vehicle was first registered
- Its CO₂ emissions
- Its list price when new
- The fuel type
For newer vehicles, the system generally consists of:
First-Year Rate
The first-year rate is typically based on the vehicle’s CO₂ emissions. Cars with higher emissions generally pay more during their first year on the road.
Standard Rate
After the first year, most vehicles move onto a standard annual tax rate. Certain higher-value vehicles may also be subject to an additional supplement.
Vehicle owners can usually choose to pay annually or spread the cost through monthly direct debit payments.
Paying Vehicle Tax
Many motorists choose direct debit payments because they help spread costs throughout the year and reduce the risk of forgetting renewal dates.
However, paying annually can sometimes work out slightly cheaper than paying in instalments.
Regardless of the payment method chosen, drivers must ensure their vehicle remains taxed, insured and, where required, has a valid MOT certificate.
Electric Car Tax Rules
Fully electric vehicles registered before April 2025 currently benefit from significant vehicle tax advantages.
However, future changes mean that electric vehicles will gradually become part of the standard Vehicle Excise Duty system. This reflects the growing number of electric vehicles on UK roads and changes in government taxation policy.
As electric vehicle adoption continues to increase, tax rules may continue to evolve over time.
What’s the Difference Between Car Tax and Road Tax?
Although many people still refer to it as “road tax”, the official name is Vehicle Excise Duty (VED).
The money collected through VED contributes to wider public spending rather than being dedicated solely to road maintenance, which is why the term “road tax” is technically outdated.
What Happens If You Don’t Pay Vehicle Tax?
Driving an untaxed vehicle can lead to penalties and enforcement action.
Possible consequences include:
- Fixed penalty notices
- Increased fines
- Court action in serious cases
- Vehicle clamping or seizure
Keeping your vehicle taxed is an important legal responsibility for every driver.
Do You Still Need a Tax Disc?
No. Physical tax discs were abolished in 2014 and are no longer required.
Vehicle taxation is now managed digitally, allowing authorities to check tax status electronically using vehicle registration information and automatic number plate recognition systems.
When buying a used vehicle, tax does not transfer with ownership, so the new keeper must tax the vehicle before driving it on public roads.
Likewise, when a vehicle is sold, any remaining full months of tax are typically refunded to the previous registered keeper after the ownership change is processed.
Even electric vehicles are seeing the tax changes too and you can find out all about that here.
Understanding the True Cost of Car Ownership
Vehicle tax is only one part of the overall cost of running a car. Insurance, servicing, repairs, fuel, depreciation and MOT costs can all have a significant impact on your vehicle’s value and affordability.
For more advice on vehicle running costs, maintenance and ownership, visit our maintenance guidance hub.
You may also find these guides useful:
Knowing your vehicle’s value can help you make informed decisions about whether it’s worth keeping, maintaining or replacing your current car.
If you’re reviewing the costs of ownership, it’s worth checking your vehicle’s current market value with Jamjar’s free valuation tool.