A Brief History of Vehicle Tax
Vehicle tax, as we know it today, has its roots in the 1888 budget when it was introduced as a tax on carriages. By 1920, the tax was revised to apply exclusively to motor vehicles.
The term "Vehicle Excise Duty" was adopted in 1936, and the system has been continually updated to reflect advancements in automotive technology. Since 2001, VED has been primarily based on a vehicle's CO2 emissions, reflecting the government's environmental objectives.
Understanding Vehicle Tax
Despite the common usage of the term 'road tax,' the official name is Vehicle Excise Duty (VED). This term is more accurate as the levy is imposed on the vehicle rather than the usage of the road.
So, what does VED really pay for? Contrary to popular belief, VED doesn't directly fund road construction or maintenance. Instead, it goes into the central government fund, just like other forms of tax such as council tax and corporation tax.
Allocation of Vehicle Tax Revenue
For the fiscal period 2022-23, the Office for Budget Responsibility estimates that VED will generate £7.2 billion in revenue. This colossal sum doesn't exclusively go to the Department for Transport or local councils.
Instead, the funds are diverted into the central government fund managed by the Exchequer. The Exchequer, headed by the Chancellor of the Exchequer, allocates budgets to various government departments, including the Department for Transport.
What Does VED Fund?
The Exchequer's funds are utilized for a myriad of public services and projects, including healthcare, education, law enforcement, local projects, and of course, infrastructure development. While it's challenging to trace every single penny of the VED, it's safe to say that a portion of it indirectly contributes to road-related projects.
Infrastructure Development
Part of the VED is used to fund infrastructure projects, including the construction of new roads, expansion of existing roads, and building tunnels. These projects aim to improve the driving experience for motorists and reduce traffic congestion.
Local Projects
Another portion of the VED funds local projects executed by the council. These projects encompass a wide range of services, including road resurfacing, pothole repairs, and car park enhancements. The funds also contribute to local community projects such as park maintenance, street lighting, and upkeep of council-run properties.
Public Services
The central government fund, to which VED contributes, also finances essential public services. These include hospitals, schools, welfare programs, and even railways and housing.
Who is Liable for Vehicle Tax?
In simple terms, if you drive or park your vehicle on UK public roads, you're liable to pay VED. It's important to note that even if you qualify for an exemption, you're still required to apply for vehicle tax.
Exemptions from Vehicle Tax
While VED is generally mandatory, there are a few exceptions. Here are some circumstances where you might qualify for a VED exemption:
Vehicles Used by Disabled Persons
If you're a disabled person, you can claim a disability exemption when applying for vehicle tax. The vehicle must be registered in the name of the disabled person, and they must meet certain eligibility criteria.
Disabled Passenger Vehicles
Organizations that provide transport services for disabled persons are also exempt from VED. However, this exemption doesn't extend to ambulances.
Mobility Scooters, Powered Wheelchairs, and Invalid Carriages
These types of vehicles qualify for the exemption if they have a maximum speed limit of 8mph on the road and are fitted with a device that restricts their speed to 4mph on footways.
Historic Vehicles
If your vehicle is over 40 years old as of the first of January, then you won't have to pay any VED. This is great news for classic car lovers!
Electric Vehicles
Electric vehicles (EVs) are exempt from vehicle tax. However, hybrid vehicles that are connected to an external power source while moving do not qualify for this exemption.
Mowing Machines
Mowing machines designed and manufactured solely for cutting grass are exempt from VED. This exemption doesn't apply to tractors used to tow gang mowers.
Steam Vehicles
Steam-powered vehicles, although rare, are also exempt from vehicle tax.
Agricultural, Horticultural, and Forestry Vehicles
Vehicles such as tractors, agricultural engines, and light agricultural vehicles primarily used off-road are exempt from VED. Short journeys on public roads are permissible as long as they are no longer than 0.9 miles (1.5km) on roads between land owned or occupied by the same landowner.
How is Vehicle Tax Calculated?
The amount of VED you have to pay depends primarily on your vehicle's CO2 emissions. The principle is simple: the higher the CO2 emissions, the higher the tax. Here's a general breakdown of how VED is calculated:
- First-year rates vary depending on the CO2 emissions. Payments range from £0 for 0g/km CO2 emissions, to £2,135 for vehicles that emit over 255g/km CO2.
- Standard rates for the second and subsequent years range from £135 to £145.
- For cars with a list value above £40,000, the payment varies based on whether the car is petrol or diesel (£465), electric (£320), or an alternative fuel vehicle (£455).
Alternative fuel vehicles include hybrids, bioethanol, and liquid petroleum gas (LPG) vehicles.
The Bottom Line
Understanding VED, its history, usage, and calculation, is essential for every motorist. Although VED doesn't directly fund our roads, it contributes to various public services and projects that benefit us all. If you're looking for a vehicle with a lower VED, numerous options are available, and specialists can help you find the perfect one.
Remember, even if you're exempt from VED, you're still required to apply for it. Be sure to check your vehicle's VED status regularly to avoid penalties. Happy driving!