What Is Car Tax and Why Do You Need It?

There are two things certain in life, as the saying goes. Taxes are a huge part of our lives whether we like it or not. They fund everything from hospitals, refuse collection, emergency services, and public roads.

Driving without appropriate car tax is not only illegal, it could also land you with fines or a court summons.

With that in mind, we look at what car tax is, why you need it, and how to apply.

What Is Car Tax?

Vehicle Excise Duty (VED), more commonly known as car tax, is an annual amount all UK drivers pay.

The government uses tax money to fund infrastructure projects, road repairs and anything else to do with our UK roads.

Why is Car Tax Important?

Car tax is similar to council tax or National Insurance. All this money is put into a pot by the Treasurer and shared with resources across the UK.

Local authorities, the Highways Agency and the Department of Transport use the car tax funds to improve existing roads. The funds can also be used for bigger projects such as smart motorways and tunnels.

Stretches of motorway limited to 50 because of roadworks? Those works are paid for in part by, you guessed it, your road tax.

This is important for the future of our roads ensuring they don’t fall into disrepair and become dangerous for drivers.

Why Do I Need to Pay Car Tax?

Car tax is a legal requirement for all UK drivers.

Essentially, because you’re using your vehicle on the roads, you should help to maintain the roads you’re using. You’re not paying for the road itself, you’re paying to use your vehicle on said road.

You’re also being taxed on the amount of emissions your vehicle releases as you drive, we’ll get further into this below.

How Much is Car Tax?

There are three bands of vehicle tax which determine how much tax you’ll be required to pay. These are:

Cars and light goods vehicles registered before 1 March 2001
Cars registered between 1 March 2001 and 31 March 2017
Cars registered after 1 April 2017

We won’t look into vehicles registered before 1 March 2001, as these are excluded from rideshare platforms like Uber and Amazon Flex.

However, you can find detailed information on the government website.

Vehicles registered between 1 March 2001 and 31 March 2017 are subject to tax across 13 different tax bands, according to their CO2 emissions. The lower your emissions, the lower your tax.

Payments start at £0 for vehicles with zero or very little emissions and increase up to £695 for the worst emitters.

Those vehicles registered after April 2017 are subject to a “showroom tax” for the first year and a standard tax of £180 from year two.

The “showroom tax” is calculated based on the CO2 emissions of the new car, and can be as little as £10, all the way up to £2605 for the most polluting vehicles. However, you’ll only need to pay this amount in the first year.

In essence, the more polluting your vehicle is, the higher your tax will be, and vice versa.

This is to mitigate the damage done by more polluting vehicles and to encourage ownership of hybrids, EVs and low-emission vehicles.

Some EVs are exempt from vehicle tax, although from 2025 this is set to change.

Even if your current tax rate is set at £0, you must still tax your vehicle with the Driver and Vehicle Licensing Agency (DVLA).

What Are the New Tax Rules?

As UK drivers switch to alternatives from fuel-powered vehicles, new rules are being introduced to help the Treasury recoup the £37bn a year it could lose due to low-emission vehicles being exempt from paying VED.

From 1 April 2025, vehicles in Band A that were registered before 1 April 2017 will be moved into Band B – meaning they’ll pay £10 tax in the first year, and £165 per year thereafter. This includes Electric Vehicles (EVs).

Low-emission vehicles registered between 1 March 2001 and 31 March 2017 will see their payments rise from £0 to £20 a year.

What Happens If I Drive Without Car Tax?

Owning or using an untaxed vehicle could land you in serious trouble.

As a registered keeper of an untaxed vehicle, a fine from the DVLA will cost you up to £80 if not paid within 33 days of receiving notice.

If you’re caught using the untaxed vehicle on the road, ignoring the fine could lead to a court summons and a greater fine of £1,000.

Even if you’re not using your vehicle, you could still receive a fine if you don’t have a Statutory Off Road Notification or SORN, for instance when keeping the vehicle in a garage for a lengthy amount of time.

A fixed penalty notice from the Police will cost you more. Police Forces use Automatic Number Plate Recognition (ANPR) cameras to spot vehicles without tax or insurance – and you’ll be issued with a £1,000 fine should they snap you.

Some exemptions apply, such as driving to an MOT test, or if you’re a disabled driver. You can find out more about tax exemptions here.

Can I Get Insurance Without Car Tax?

Car tax and insurance are both legal requirements if you intend to use your vehicle on the road.

This being said, you can apply for insurance without your tax in place.

We strongly recommend that you apply for your vehicle insurance and tax at the same time to avoid breaking the law. It could also lead to complications in the event of a claim if your vehicle is untaxed.

If you’re looking for a car insurance quote, INSHUR provides coverage for a multitude of professional and commercial drivers, including Private Hire and Couriers.

How to Apply For Car Tax

Applying for car tax or VED is very simple.

You can apply online via the government’s tax portal. You can apply to tax your car, van or motorcycle here.

You’ll need:

A reference number which you can find on a reminder letter from the DVLA
The green new keeper slip if you’ve just purchased your vehicle
Or your vehicle log book (V5C) in your name

Here you can choose to pay in one lump sum (generally cheaper) or in 12 direct debit instalments across the year.

You can also pay over the phone by contacting DVLA’s 24-hour line on 0300 123 4321.

If you prefer bricks and mortar, you can also visit your local Post Office which will provide you with the correct forms, and you can pay over the counter.

In Conclusion

With all the different bands, car tax or VED can be confusing to get your head around.

We hope this guide has helped explain what car tax is, why it’s important and the reasons why you need it.

Fortunately, if you’re buying a brand-new vehicle, the dealership should be able to help you with the first year’s tax.

For everything else, there are calculators you can use to help such as this one from Parkers. All you need to know is the make and model of your vehicle.

Lastly, it’s important to remember that taxing your vehicle is your responsibility as a vehicle owner, and is a legal requirement alongside purchasing insurance.

Failure to do so could result in fines, court summons and your vehicle being clamped.

Avoid the headache by making sure your vehicle is always taxed correctly.

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