Some know it as road tax, while others rightly call it VED (Vehicle Excise Duty) but car tax is something that all drivers are affected by in some shape or form. Since its inception in the early 20th century, car tax has been collected by the Government, though this process has evolved over time as our automotive technology has also developed.
Let’s get into the details of what car tax is and why it is we pay it…
| What is Car Tax? | What does Car Tax pay for? |
| What are the Car Tax changes from 2025? | How much is Car Tax? |
| How much is Electric Car Tax? | How do I tax a car? |
| Where did the tax disc go? | Car Tax FAQs |
What is car tax?
Car tax is more officially known as VED and was born out of a need to collect funds to look after our roads, as cars became more and more prevalent.
Starting out as a direct way to cover the cost of both the maintenance and creation of our road systems, car tax exists today as a cost to motorists – in essence – as a tax on your vehicle.
The term ‘Vehicle Excise Duty’ was established in 1936, and the system has evolved ever since, with the cost of car tax increasingly becoming a reflection of how efficient a vehicle is. As a result, regulations such as EU directives to have manufacturers build their cars with engines that meet certain standards have had a notable effect on car tax.
Vehicle Excise Duty being based on emissions has been around since 2001, and the calculations around them have moved with such changes in technology. For instance, in 2001, average new car emissions were 178g/km of CO2, but this figure has since dropped to circa 125g/km.
A balancing act of ensuring enough money is being brought into Government coffers, and the right kinds of cars paying certain amounts, is always at the forefront of what car tax is about, with updates happening every few years as a result.
Car tax bands are also in place to reflect the effectiveness of creating strong signposting for environmental standards. However electric cars used to be exempt, but this is no longer the case.
What does car tax pay for?
While many might believe the opposite, VED doesn’t go directly to local councils – or even the Department of Transport – in fact, it goes into the same pot of cash as your council tax and other such contributions.
So, while the DoT doesn’t get its funding directly from the public, the Government will allocate a yearly budget to the department for it to spend as required.
Effectively, car tax is not a road tax, but more a tax on the vehicle itself. Whenever you see roads getting repaired, it is not car tax paying for this – the cost allowance for this maintenance is worked out with the rest of the budget for a local council as whole.
When it comes to the enhancement or creation of major road systems, meanwhile, the budget for this work comes out of the total budget handed to the Department of Transport by the Government.
What are the car tax changes from 2025?
This is a fairly fluid question, and the answer you get will depend on a few factors. Firstly, the age of your car makes a big difference, as there are different rules based on a car’s age.
If your car was registered before April 1st 2017, then an older set of rules will apply. A further set of rules applied if your car was registered after that date to March 31st 2025.
The latest car tax changes will take affect on any vehicle registered from April 1st 2025. Today’s car tax bands are worked out predominantly on the basis of a car’s emissions, while the cost of a vehicle also plays a part – there are also differences in what you’ll pay in the first year of a car being registered to the second year and beyond.
How much is car tax?
The annual car tax (VED) will be £195 from April 2025. Hybrid vehicle owners receive a £10 reduction. However, if your vehicle’s original list price was over £40,000, you’ll need to pay an additional £425 ‘luxury car tax’ annually.
Your payment may differ if your car was registered before 2017. The exact amount depends on your vehicle’s registration year and fuel type. Currently, many electric vehicles are exempt from road tax, but this will change in April when VED charges will apply to EVs for the first time.
How much is electric car tax?
Electric vehicles are now subject to Vehicle Excise Duty (car tax), ending their previous exemption. Here’s what you need to know:
Electric vehicles are now subject to Vehicle Excise Duty (car tax), ending their previous exemption. Here’s what you need to know:
For EVs registered after April 1st 2025:
• First-year rate of only £10 until 2029
• Additional £425 annual “Expensive Car Supplement” for vehicles over £40,000
For EVs registered between April 1, 2017 and March 31, 2025:
• Standard road tax rate of £195 per year applies (same as conventional vehicles)
Changes for hybrid vehicles:
• Plug-in hybrids (1-50g/km CO2) now face a first-year tax of £110, up from zero
• Vehicles emitting 51-75g/km CO2 will see tax increase to £135 (from £30 for petrol/diesel or £20 for hybrids)
Additionally, all other tax rates will double next year, significantly impacting vehicle owners: Standard Vehicle Excise Duty rates beyond the first year will continue to rise in accordance with the Retail Price Index (RPI), as per usual practice.
How do I tax a car?
When buying a brand new car, and it is being registered as part of the process, car tax will be taken care of by the dealer you’re purchasing your car from. If buying a second-hand car, you will be able to arrange car tax on your own, although the dealer may be able to help you sort this as part of the buying process.
To tax a car you already own, you will get a reminder from the DVLA (a V11 reminder letter), which will give you guidance on how best to tax your vehicle, and the easiest and quickest way will be to arrange your car tax online via the Government portal. They will offer you a choice of paying every month, every 6 months, or every year using Debit, Credit Car, or Direct Debit. You can also pay at your local Post Office.
The process is straightforward, and you just need the reference number from one of the following:
- a recent reminder (V11) from the DVLA
- your vehicle log book (V5C) – it must be in your name
If you’ve just bought a car privately, then you’ll also be able to use the reference from the green ‘new keeper’ slip that is from the car’s log book.
Where did the tax disc go?
Anyone who was driving before 2014 may very well remember the physical tax disc that went in the corner of our windscreens. Due to the modernisation of monitoring car tax, such needs became obsolete, and so the tax disc quickly became a thing of the past.
Car Tax FAQs
When is my car tax due?
You can find this out on the Government’s online portal – you just need your vehicle’s registration to get started.
Can you tax a car without an MOT?
You will require a valid MOT certificate if you wish to get your car taxed, as driving without an MOT is illegal.
How to tax a car without a V5C document?
You can also use your reference number from a V11 reminder letter that the DVLA will send you when it’s time to renew your car tax. If you are trying to tax a vehicle you’ve just bought, but have not received the updated V5C document, then you can use the reference from the ‘new keeper’ slip.
Can the police seize my car for having no tax?
The DVLA has devolved powers to the police and local authorities that allow them to seize untaxed vehicles, and take them to a compound where you’ll need to pay a fee to have it released, as well as provide evidence that you have subsequently taxed your vehicle.
Which cars are exempt from car tax?
Vehicles used by those who are disabled are able to claim disability exemption if they meet certain criteria. Meanwhile, vehicles that are used by organisations providing transport for disabled people are also exempt.
Historic vehicles over 40 years old do not have to pay car tax.
Electric vehicles are exempt, but this will change in 2025.
When was road tax abolished?
When Vehicle Excise Duty was brought in in 1936, ‘road tax’ was abolished, as the tax collection from motorists no longer directly paid for the cost of road maintenance.
Do buses pay tax?
Buses do pay VED, but at a discounted rate as they provide a public service.
Why don’t cyclists pay tax?
As previously explored, car tax isn’t a tax to use the roads or pay towards their maintenance – car tax is a tax on the vehicle. As such, cyclists do not need to pay tax as no equivalent taxation applies to bicycles.
Learn about how electric and hybrid cars work and how they help the environment with our comprehensive guide.
Discover emission-free driving with a new electric car through one of our various manufacturers. Plus, you can find some great deals on used electric cars which are more widely becoming available on the second-hand market.