Car tax to rise by 10.1% in April: what the increase means for you

The cost of taxing your vehicle is going up from April, with vehicle excise duty being increased in line with inflation.

In the Budget last week, the government confirmed that vehicle excise duty (VED) would rise from 1 April. It’s yet another challenge for motorists to deal with, given the way fuel costs have shot up over the past 12 months, alongside other household bills.

So how does VED work, and how much will it be increasing by? And are there any ways drivers can reduce their VED costs?

What is vehicle excise duty (VED)?

Vehicle Excise Duty (VED) is sometimes referred to as car tax, but it doesn’t just apply to cars. 

It’s a tax that motorists have to pay each year, with a first year rate ‒ based on the vehicle’s emission levels ‒ followed by a flat standard rate for each year thereafter.

The VED rates you have to pay will also be influenced by when your vehicle was registered, meaning when it first went into use. The current VED system applies to cars registered since April 2017. Older cars fall under the previous VED system, where there was a single standard rate charged each year based on the vehicle’s emission levels.

How are VED rates changing for vehicles registered since 2017?

There were plenty of announcements in the Budget that will affect our finances, including changes to the VED rates. From 1 April, the VED rates will increase in line with inflation.

Importantly, this increase is based on the retail prices index (RPI) measurement of inflation. The RPI figure is always higher than the consumer prices index measurement of inflation, and means that car tax will be increasing by 10.1%. The sums are then rounded to the nearest £5.

That means the standard rate ‒ which you pay from year two after the car was registered ‒ will increase from its current level of £165 to a new flat figure of £180. There is also a supplement you have to pay if your car costs more than £40,000. The supplement runs for five years, and means an extra £390 on top of the standard rate.

The VED rate paid in the first year after registration will continue to be dictated by the emissions level of the car. The table below details what that first year rate is currently, and what it will be from 1 April, 2023, as a result of the increase.

As you can see, if your vehicle has higher emission levels, the first year VED cost can be really high, running into thousands of pounds.

Another important change announced in the Budget is that from 2025, electric vehicles will lose their exemption from VED. As a result, owners will pay the standard rate from the second year. Those who drive hybrid vehicles currently receive a £10 annual discount on their VED, but this will also be removed from April 2025.

How are VED rates changing for vehicles registered between 2001 and 2017?

If your vehicle was registered between 2001 and 2017, it is subject to the old VED system. There is no special first-year cost for these vehicles. Instead, you pay a single annual rate each year, and again it is based on emission levels.

These older vehicles will also see their annual rate increasing from April. Here is how the rate will be changing:

How can I save money on my VED?

There is no escaping the fact that you will likely need to pay VED on the vehicles you use, though there are ways to keep the costs as low as possible.

For example, you have a few payment options when it comes to actually handing the money over. You can pay it all in one go, in two payments six months apart, or monthly through direct debit.

While the latter two options may make monthly budgeting somewhat easier, it’s worth bearing in mind that they will be more expensive. The government imposes a 5% surcharge if you pay either in two or 12 stages, but there’s no surcharge to worry about if you pay your VED all in one go.

Over the longer term, keeping your VED costs to a minimum will mean opting for vehicles with lower emission levels. While electric vehicles will no longer be exempt from the first year charge from 2025, they will continue to incur lower charges than those that are purely powered by petrol or diesel.

Some disabled drivers are also exempt from VED, for example those who use a mobility scooter or who receive the disability living allowance mobility component’s higher rate.

What happens if I don’t pay VED for my vehicle?

Paying the required VED is really important for all road users, as you will be punished for failing to do so.

If your vehicle has not been taxed, and has not been declared SORN (a statutory off-road notification, meaning it is no longer being used), then you’ll be sent an £80 fine. This will be reduced by 50% if you pay within 28 days, but if you fail to pay you could be taken to court and fined up to £1,000.