As any accountant might tell you, tax can be a pretty dull subject. But as any accountant might also tell you, it can be pretty important as well. And that applies to vehicle tax as much as any other type of tax.
Which is why we've put together a post all about it – with a leasing focus, of course.
How you pay it, when you need to pay it, and how much – these are all questions which answering. Indeed, the various tax bands and their associated charges have undergone a significant amount of change over the years, so it's not always that black and white.
As it happens, vehicle tax is included as part of the agreement in all of our lease deals here at LeaseLoco, so you don't have to worry about organising it yourself. That being said, it can still be pretty important to know what you're paying for. Plus it's always good to know about the hassle that you're not missing with a PCP deal or buying outright.
But if all this sounds like a 'taxing' read, then there's plenty of other topics!
What is Vehicle Tax?
Vehicle tax, or vehicle excise duty (VED), is a tax imposed by the government on every vehicle on UK public roads. It needs to be applied for with every car in the UK, even if no tax is due, like in the case of a Statutory Off Road Notification (more on that later).
Collected yearly by the Driver and Vehicle Licensing Agency (DVLA), you basically pay vehicle tax in order to be able to drive or park on the road. Along with car insurance, servicing and MOT, it's one of those 'must do' things that come with the whole driving experience. Your fundamentals, your bread and butter.
You'll often hear vehicle excise duty referred to as 'road tax', but that's not quite the correct term. Strictly speaking, the tax isn't for being on the road, it's for the vehicles that use it. Road tax was actually abolished back in the 1930s, with the cost of maintaining the nation's roads now covered by general taxation.
Is Tax Included When Leasing?
As luck would have it, vehicle lease deals (including ours here at LeaseLoco) come with vehicle tax included for the entire duration of your lease, whether that's five years or just one. So, whether you decide to lease a car on business contract hire or personal contract hire, you'll have road tax included in the total cost.
That's because it's the registered keeper who's responsible for taxing the vehicle, and since the leasing company is the registered keeper (despite the car being in your hands), they tax it.
Okay, it might not be winning the EuroMillions, but it does mean you have one less administrative duty to worry about. Whereas if you bought a car outright, it would be your responsibility to tax it year in year out.
Are Electric Vehicles Exempt?
Sure are. You don't pay any tax on electric vehicles (not including hybrids and plug-in hybrids), and that's one of their main draws.
But that's going to change by the year 2025. From that point on, new zero-emission cars registered on or after 1 April 2025 will have to be taxed, as will zero-emission cars registered between 1 April 2017 and 31 March 2025. And not only will zero-emission car and van drivers start paying road tax at the rate of their petrol counterparts, but hybrid cars will also lose their discount on the annual basic VED rate they pay.
An official tweet from the UK Treasury said that the change is being brought about in order to make sure that "all motorists begin to pay a fair share" and because "support for charging infrastructure is continuing" (after all, electric drivers already get what you could call a 'fuel discount'). Also, as we move towards the 2030 ban on the sale of new petrol and diesel cars, demand for electric vehicles is increasing, meaning there's less of an incentive to get people to switch to them through perks like zero tax.
We don't know about you, but we think that due to all the other cost benefits that come with running an electric car, their demand should remain high.
Which Other Vehicles Are Exempt From Vehicle Tax?
We've obviously already covered alternative fuel vehicles (electric), but there are a few other types. The following vehicles are exempt from vehicle tax, and have been ever since the 2020 changes came into effect:
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Steam vehicles
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Mowers
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Agricultural, horticultural and farming vehicles
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Mobility scooters
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Vehicles registered before 1 January 1981
Are Tax Disks Still a Thing?
Nope, they were discontinued in October 2014, so you no longer need a tax disc. The government decided its abolition would make the system a lot cheaper to run, and they're not wrong.
Obviously though, not needing to have a tax disc is hardly a get out of jail free card for you. You still have to pay. In fact, it's a lot tougher for cheaters to escape unpunished now, as the DVLA uses an extensive database to check who's paid and who hasn't, which is definitely a more effective way of going about it.
Unfortunately though, the move away from a physical tax disc can catch some people out as they no longer have a quick and easy way of checking when their tax is due for renewal.
Which begs the question: if there's no tax disk to tell you, then how do you know when the tax is due?
How Can I Check My Car Tax Renewal Date?
It's a simple case of heading over to the DVLA website. They hold a record of all registered vehicles and their tax and MOT status. All you need is your car's registration number, and you're good to go.
Alternatively, the Government website is always a good bet.
However, you will receive letters nearer the time (a Renewal Reminder, the forms are called V11s and V85/1s), so you can't really go wrong.
How Much Does it Cost to Tax a Car?
The rate of yearly tax which you pay depends on what tax band your vehicle falls into. The bands are usually classed according to car cost when new, year of production, and level of CO2 emissions. That's partly because the UK government has certain targets it needs to meet regarding climate change and emissions.
Depending on when your car was first registered, there's different rates of tax. The bands are as follows:
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Car first registered on or after 1st April 2025
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Car first registered between 1st April 2017 and 31st March 2025
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Car first registered between 1st March 2001 and 31st March 2017
Taxes on vehicles registered after 1 April 2017 Fuel type and the car’s new list price (if more than £40,000) will determine the tax rate paid on vehicle excise duty.
This can range from £0 to as much as £2,365 for the most pollutant cars, but its CO2 emissions would have to be above 256.
Taxes on vehicles registered between 1 March 2001-31 March 2017 It's CO2 emissions and fuel type which determine this level of road tax.
Although cars bought between March 2001 and 2017 will continue paying a tax rate based on the CO2 emissions, these will change in March 2025, moving from Tax Band A (£10 per year) to Band B (£20 per year).
Taxes on vehicles registered before 1 March 2001 In this instance, it's engine capacity that's used to determine how much tax is paid. Engine capacity up to 1549cc pay one rate, and above that a higher rate applies.
Engine capacity (cc) below 1549cc = £180 tax.
Engine capacity (cc) above 1549cc = £295 tax.
Are There Circumstances Where It's Legal to Drive Without Car Tax?
There are a few situations where it’s acceptable to drive without paying for vehicle tax even if you drive a car that would otherwise have to be taxed. These are:
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If you’re taking your vehicle to a garage or dealership for its pre-booked MOT
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If you suffer from a disability
Classic Cars: Taxes
Other exempt vehicles are ones which are at least 40 years old. So from 6th April 2023 (the start of the new tax year), you won't have to pay any tax on vehicles which were registered in or prior to 1982. These are known as 'historic vehicles'.
But even if you have one, it's not all a free ride. There's still paperwork involved as you have to apply to claim the exemption each year, and you can't ignore the DVLA's reminders.
Sadly, since the vast majority of lease cars are brand new, you won't be able to lease a historic vehicle anytime soon. Not at LeaseLoco anyway (sorry!). Though we're happy to say that older used cars are slowly making their way into the market.
How Can I Cancel My Car Tax?
It's a simple case of telling the DVLA that you no longer have the vehicle or that it's off the road. Take the following steps and you really can't go wrong:
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Inform the DVLA why you’re cancelling your car tax
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Wait for them to automatically process the cancellation
For obvious reasons, you can't just cancel your road tax using your car's number plate (which anyone can get hold of). Instead, you'll need official, unique documents like your vehicle's V5C logbook or a V11 tax reminder form.
Can I Get a Refund If I Sell My Car?
Certainly can.
Once you've cancelled any existing tax, you can get a refund for any full months of remaining tax.
It should take about six weeks for the refund to be processed and received.
How Do I Pay Car Tax: At the Post Office, Online Or by Phone?
You can do it via any of the above methods. Just make sure that your car has a valid MOT (which has to be valid from the date your vehicle tax starts or the date your vehicle tax is issued), or else the process can't be completed.
Online is obviously the quickest and easiest way. You’ll fill out a few details, receive a reference number in order to get through the application, and voila . . . done. But the Post Office could be a good bet if you prefer a bit of human interaction (old-fashioned, aren't we?). Or if paying by phone, ring up the DVLA's vehicle tax service on 0300 1234 321. The lines are open 24/7.
Not that you'll have to go through the trouble of doing any of that when you lease a car, because like we say, it's all covered as part of the lease deal!
But if you're getting a car another way and have to arrange for vehicle tax yourself, then certain documents are needed to complete the process. You'll need at least one of the following to hand:
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V5C logbook: your vehicle's official logbook (which must be in your name). Probably the Holy Grail in terms of car-related documents.
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DVLA V11 letter: this is a road tax notification letter which should be sent to you approximately a month before your vehicle tax due date.
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V5C/2: which is the details slip of the new registered keeper. If you recently bought the car, this would be found in the previous owner's logbook.
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V85/1: only relevant if it’s a Heavy Goods Vehicle (i.e. an HGV).
In the event that you don't have any of those documents on you (or your dog ate them or something!), then you'll be required to apply for a new V5C logbook, for which you'll need to fill out a V62 form from your nearest Post Office. Not having any of these documents to hand will require you to apply for a new V5C, to do which you'll need to fill out a V62 form, which you can pick up from your local Post Office at a cost of £25.
Paying By Monthly Direct Debit Costs More
You can either pay in one lump sum (the cheaper option) or choose to split the cost into manageable chunks across 12 months via direct debit, which will incur additional charges – usually around the 5% mark.
Could be a good way to get your credit score up though.
Taking Your Car Off the Road
What if you have a car but don't plan on using it on the roads for a long period of time? Do you still have to pay tax on it?
The good news is that you don't.
You can avoid paying tax on it through what's called a Statutory Off-Road Notification (SORN). This is a legal requirement and can be done via post or by completing a form online. But in saying that, we must stress that off-road really does mean off-road, so you can't leave your car parked on the road or at a parking lot (which would require tax). Instead, the vehicle must be stored in a garage or on a private driveway.
Once the SORN has been declared and applied, then bingo . . . no car tax to be paid. The only time you can legally drive it is when you're travelling to a pre-booked MOT appointment or another similar vehicle test service. Drive it out on the roads for any other reason and you could face a fine of up to £2,500. Ouch!
If and when you want to get the car back out on the road, simply tax the vehicle and its SORN will then be cancelled automatically.
Summary
In conclusion, tax isn't really something you need to worry about too much with leasing. Although it still has to be paid for, the administrative side of actually doing it is covered as part of the lease agreement, which is another one of the advantages that leasing has over PCP.
Live the leasing life.
Leasing With LeaseLoco
Here at LeaseLoco, we make it super quick and easy for you to search through the hottest car and van leasing deals on the market. We want to give you every confidence that you are working with the very best brokers and car dealers, which is why all of our leasing partners have signed our Ethical Code of Conduct and why we have the highest advertiser partner criteria in the industry.
Plus, all of our available deals include . . .
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FREE delivery to your door (mainland UK)
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Full manufacturer's warranty
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Free breakdown cover
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Vehicle tax
If you’ve read about the benefits of car leasing here in this post and think that leasing a car is the best option for you, then why not check out the hottest deals available for one that suits you best?
FAQs
Does the owner of a car have to tax it?
Technically, it's the registered keeper of the car who's responsible for taxing it. So in the case of leasing, that's the funder, not you.
What happens if I forgot to tax my car?
Not having your vehicle taxed is illegal, meaning you could end up with a potential £80 fine. The authorities also have the right to clamp or crush your car in the event that you don't pay up.
How does tax work when buying a used car?
Unfortunately, vehicle tax can't be transferred between drivers, so you'll need to have it in place as soon as you purchase the car and before driving it off onto the road. However, it's worth nothing that vehicle dealers can still tax the car for you by using your name, address and the V5C/2 registration.
Is vehicle tax and road tax the same?
Not really, but you will hear the two terms used interchangeably. There's technically no such thing as road tax (it's the government who covers all road-related expenses), so vehicle tax is the correct term to use.
Which cars are free to tax until 2025?
New cars which have a zero rating for CO2 emissions and which cost less than £40,000. So in other words, a large number of battery electric and hydrogen-powered vehicles.