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Understanding the Car Tax

16 April, 2018

It has been a year since the new car tax came into play in the UK. They first introduced it in 2017, and as of April 1 of this year, now diesel cars are added to the list.

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It has been confusing to try and understand what this tax is.

If you are looking to purchase a new vehicle, the type and year could end up costing you more money. Let's take a look at the history of the car tax and understand why it is there.

What is a Car Tax?

The car tax is actually called a Vehicle Excise Duty (VED) but has other names including vehicle tax or road tax. Simply put, the car tax is a tax on people using a vehicle on public roads.

But this is not something new. In fact, the car tax was first introduced back in 1870 as a road taxation. The revenue was for road and infrastructure construction. It was in 1937 when the government introduced VED  and replaced the pre-existing tax. As the tax changed over the years, it was enforced by the Driver and Licensing Vehicle Centre (DLVC), later turned to the Driver and Licensing Vehicle Agency (DLVA).

In 2005, the tax was revamped again to entice the public to drive vehicles that produce lower amounts of CO2 emissions. The cars CO2 rating significantly influenced the tax rate. But in 2017 when the most recent changes occurred, it was thought new car owners were not paying their fair share of the tax.

What Determines the Tax?

Before, the CO2 emissions of the vehicle you drove determined the amount of tax paid. With the newest reform, the registration date is now part of what determines how much of the VED tax you pay. But it is only the vehicles registered after April 2017 that are affected.

There are different categories in which a vehicle will fall under to determine the taxation. Vehicles registered before 1977 are exempt from the VED is you apply for an exemption under the historic tax class.

The tax on vehicles between 1977 to 2001 depend on the size of the engine. The base point is a 1549cc engine. If your vehicle is above that, you will pay more. If it is under, you will pay less.

Any vehicles between 2001 to 2017 will take the type of fuel it requires and the CO2 emissions. There are different Bands that base the taxation on your vehicle. Band A vehicles have the lowest amounts of emissions whereas Band M has the highest costs.

VED Tax Exemptions

There are exemptions to this tax, besides the historic or classic vehicle exemption. Steam-powered vehicles and those used for agriculture and forestry purposes are also exempt from the tax. Electric vehicles are exempted as long as the power comes from an external source or an electric storage battery.

If you own a mobile scooter or a powered wheelchair that does not go past eight mph on the road and four mph on pathways, they are exempt. However, you must apply to the DVLA to keep your exemption up to date.

There are other exemptions from the VED if you receive the Disabled Living Allowance (DLA). This exemption is based on the amount of the DLA you get.

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