UK car tax bands explained

What is car tax?

Since 2001, all cars in the UK have been subject to road tax when they’re first registered. When a car is originally registered will determine which criteria the car must meet and how much road tax will need to be paid. For example, a car registered before March 2001 will cost either £145 or £230 per year based on the size of the engine, whereas a car registered between March 2001 and March 2017 will fall within one of 13 bands based on the CO2 emissions.

To further complicate calculating how much tax you will need to pay, the UK government has introduced additional charges for cars with a list price over £40,000 and non-RDE2 diesel cars as of the 1 April 2018, which are explained later in the article.

When did car tax change?

The government first introduced emissions-based vehicle taxation in 2001. However, on 1st April 2021, VED rose in line with inflation based on the Retail Price Index (RPI). Only pure electric vehicles (EVs) are currently exempt from VED.

Has my car tax gone up?

VED rose on 1st April 2021, but the change will only affect your very first VED payment when you buy and register a new vehicle after this date.

How much will my road tax be in 2021?

For most drivers of new and older cars, the annual cost will increase by around £5, but drivers of new vehicles with the highest emissions will pay £70 more in the first year.

What are CO2 emissions?

The CO2 a car emits is measured in grams per kilometre (g/km) and indicates its ecological credentials.

LPG (liquified petroleum gas) car tax

LPG is charged at 31.61p per/kg, roughly half the cost of petrol and diesel due to a lower fuel exercise duty – that translates to an average of 60-67p per litre compared to £1.25 for petrol. Therefore, you’d save nearly 50% on your monthly fuel bill by switching to LPG.

Notable 2021 car tax changes

• Band D increased by £5 (emitting 76-90g of CO2 per km)
• Band E-H increased by £10 (emitting 91-150g of CO2 per km)
• Band I increased by £25 (emitting 151-170g of CO2 per km)
• Band J increased by £40 (emitting 171-190g of CO2 per km)
• Band K increased by £55 (emitting 191-225g of CO2 per km)
• Band L increased by £80 (emitting 226-255g of CO2 per km)
• Band M increased by £110 (emitting 256g and above of CO2 per km)

Will Benefit-in-Kind (BIF) car tax change in 2021?

Benefit-in-kind (or BIK) is a tax on employees who receive benefits or perks on top of their salary. If you have a company car for private use, you will have to pay a BIK contribution. Pure EVs and hydrogen fuel-cell cars moved into the 1% BIF category for the 2021/22 tax year. In 2022/23, this will increase to 2%.

Cars registered before March 2001

All cars registered before March 2001 fall under the first tax regime; these tax rates are based on the size of the vehicle’s engine rather than CO2 emissions. All cars with a capacity lower than 1,549cc have an annual road tax cost of £145, whilst anything with a capacity greater than 1,549cc will have an annual road tax cost of £230 per year.

Cars registered between March 2001 - March 2017

In March 2001, the government introduced tax bands based on the amount of CO2 a car emits. This meant that cars with the lowest emissions (up to 10 g/km) would be exempt from road tax, whilst cars that emit the highest emissions (over 225 g/km) would pay £515 annually.

The other major change was that cars will pay a different amount for their first year, meaning that if your car emits less than 130 g/km of CO2 emissions, you won’t pay any VED until the second year.

If you own an alternative fuel car, such as hybrids, plug-in hybrids, CNG, biofuel or LPG, your road tax is £10 less than a petrol or diesel vehicle that falls into the same tax band.

If you own a car that is registered before the 23rd March 2016, there is a maximum annual rate of £315, even if the vehicle's emissions are in the highest VED band.

Cars registered after 1st April 2017

Petrol and diesel cars registered from the 1st April 2017 onwards will be subject to a higher tax rate for the first year based on the CO2 emissions. After the first year, a standard rate of £140 is charged annually. If you own an alternative fuel car, you will pay £10 less than in the first year and £130 thereafter for a car that emits the same emissions as a petrol or diesel equivalent. First-year car tax bands for petrol and diesel cars registered after the 1st April 2017 are detailed below:

April 2018 road tax changes

Since April 2018, the list price of a car and the CO2 emissions are both factors for calculating car tax for cars registered after the 1st April 2017. Every vehicle with a list price of over £40,000 will need to pay £310 for the first five years of ownership. In these instances, the overall amount that car owners will be required to pay for the first five years are as follows:

• Electric / Zero-Emission Cars: £310 annually
• Alternative Fuel Cars: £440 annually
• Petrol / Diesel Cars: £450 annually

After five years, the additional rates will be removed and the overall tax costs will return to £0, £130 and £140, respectively.

The government defines a car’s value as the price of the vehicle, including manufacturer fitted options, delivery and delivery fees, before any discounts.

Diesel cars registered after 1st April 2018

Diesel car tax

Diesel cars registered from 1st April 2018 will be subject to additional road tax charges for the first year if they fail to meet the Real Driving Emissions 2 standard (RDE2). If a diesel vehicle does meet the RDE2 standard, the owner will pay the same amount in the first year as the table above. Similarly, the flat rate of £140 per year will apply from year two onwards irrespective of the cars CO2 emissions.

You can see first-year VED rates for cars that fail to meet RDE2 standards and are registered after 1st April 2018 below:

Car tax when selling or buying a car

When you buy a second-hand car, the road tax is not transferred to the new owner. Even if the car has been taxed the month before for the forthcoming year, the vehicle will need to be taxed by the new owner before it can be driven on the UK roads.

If you are selling your car, you may be eligible for a refund for the full months that are left on the car’s tax. You should receive the refund automatically from the DVLA when you transfer the V5C documentation.

Cars over 40 years old

Cars built or registered over 40 years ago are exempt from paying vehicle tax under rules introduced in 2017. Take a look at our classic car tax exemption guide for more information.