Road tax is one of the many costs to consider when searching for a new car. When it comes to electric cars, it could be a big deciding factor. In this post, we’ll discuss everything you need to know about road tax and how an electric car or hybrid could save you money.
What does road tax pay for?
Even though the name suggests it, road tax does not actually help pay for road maintenance. When road tax is paid, it ends up with the Exchequer in the same place as other taxes, such as council tax, corporation tax, and so on.
Road upkeep comes under the responsibility of the Department of Transport. This organisation takes the money allocated to them by the Exchequer and distributes it to the Highways Agency, which maintains the strategic road network across England, and the local authorities, who maintain roads but not the motorways.
Road tax can go towards many different areas, including:
- National Infrastructure – The Department for Transport is allocated a budget by the government. Some examples of national infrastructure improvements are new smart motorways, the creation of new roads, widening of existing ones and the construction of tunnels. These projects are often carried out in partnership with private firms that bring their expertise and specialist knowledge to the table.
- Local Government Projects – The Exchequer supplies a budget for a local council, which they then can use for local projects. Examples of local projects include resurfacing work, new road layouts and building – or improving – car park facilities.
One key exemption are people who lease a car. If this is the case, you don’t need to pay the road tax as you do not own the car.
How road tax is calculated
Car tax, formally known as Vehicle Excise Duty (VED), is based on either carbon dioxide (CO2) emissions or, for older conventional cars, engine size. The price of your car tax links closely to your vehicle’s tailpipe CO2 emissions as measured on the official test, but can be broken down into two types of rate.
The first rate is for a new car’s first year on the road, which varies depending on how much carbon dioxide it emits. Then, once a new car has spent a year on the road, a second system applies, which is affected both by CO2 emissions and how much the car cost when it was new. Since 2001, car tax rates have been based on 13 tax bands, ranging from £0 to £2,135.
Is there a road tax on electric cars?
Good news for electric car drivers. In the current VED system, introduced in April 2017, the government lists electric cars as being exempt from vehicle tax. This is because the vehicles are considered pollution-neutral. What’s more, electric vehicles will be exempt from company car tax from April 2020.
One-hundred percent electric cars with zero emissions are exempt from both first-year and annual road tax. However, EVs with a list price of over £40,000 will be subject to pay an extra tax (usually £320) if they were registered after 31 March 2017. You’ll only have to pay this rate on top of the standard rate for five years – starting from the second time the vehicle is taxed.
Maybe your showroom floor negotiation skills are incredible? However, even if you manage to haggle a £40,000 electric car down to below £40,000, you will still have to pay the supplement. This is because the tax is based on the cost of the car for tax purposes – so no haggling here, sadly. This £40,000 calculation also includes all options and trim levels, so be careful not to overload with extras and add-ons.
What about hybrids?
Plug-in hybrid vehicles produce considerably less emissions than petrol and diesel cars, which is why they are entitled to lower road tax rates. They are now likely to cost between £10 and £100 for the first year – depending on the CO2 emissions. The rate could reach £140 each year after that.
If you find that you don’t owe any tax on your electric vehicle, you still must register the car for legal reasons. Drivers can do this online, in person at the Post Office or over the phone. Who knows – electric car owners might enjoy going through the car tax process, since it is free!