Vehicle excise duty

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Vehicle Excise Duty (VED) is a British excise duty, which has to be paid to acquire a vehicle licence for most types of motor vehicle. A vehicle licence is usually required if a vehicle is to be legally used on the public roads. The tax, although commonly referred to as road tax, is not hypothecated for spending on roads, the entire proceeds contributing to central government revenues. Excise duty on road vehicles was first introduced in the 1888 budget, and a new excise duty specifically for motor vehicles was introduced in 1920. VED is collected and enforced by the Driver and Vehicle Licensing Agency (DVLA). Proof of payment comes in the form of a paper disc that must be clearly displayed on the vehicle, and gives rise to the third interchangeable common term used for the tax, tax disc.

Description

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Any vehicle used or kept on the public road is liable. Vehicle owners paying the tax are issued with a non-transferable vehicle licence ("tax disc") which must be displayed on the vehicle.

Since 1 September 2008, the DVLA have stated: "If you pay your vehicle tax by phone or online before the current disc runs out, then you can legally drive or keep your vehicle on the road whilst displaying the tax disc that has run out, for up to 5 working days (Giving time for your new tax disc to arrive by first class post)."

Since 1998, owners of registered vehicles not using the public roads have been required to submit an annual Statutory Off-Road Notification (SORN).^[1] Failure to submit a SORN is punishable in the same manner as failure to pay duty and display a tax disc when using the vehicle on public roads.

In March 2005, graduated vehicle excise duty (GRAD VED) was introduced as an incentive to purchase vehicles with low emission levels:and now is changed .

• Cars registered before 1 March 2001 are charged according to engine capacity. In the 2008 – 2009 tax year this was £120 for cars with a capacity not over 1549cc and £185 for those over 1549cc. This was increased from 1 May 2009 to £125 for those cars not over 1549cc and £190 for those cars over 1549cc.
• Cars registered on or after 1 March 2001 are charged according to their level of carbon dioxide (CO₂) emission. For 2008 – 2009 this was up to £400, with the least emitting vehicles paying no excise duty at all. From 1 May 2009 petrol and diesel cars could pay up to £405.
• The highest rates of Vehicle Excise Duty ("Band G") only apply to vehicles manufactured after 23 March 2006 - the maximum VED for vehicles manufactured before that date is £205 for petrol and diesel powered vehicles. This increased to £215 from 1 May 2009.

Rates for all other vehicles vary from £15 for motorcycles with an engine capacity not over 150cc, up to a maximum of £1,850 for the largest heavy goods vehicles (HGVs). (Special rates apply to HGVs not used commercially.) A few special-purpose vehicles such as ambulances are exempt.

In tax year 2002 – 2003, it is estimated that evasion of the tax equated to a loss to the Exchequer of £206 million. In an attempt to reduce this, from 2004 an automatic £80 penalty (halved if paid within 28 days) is issued by the DVLA computer for failure to pay the tax within one month of the expiry of the previous tax disc. A maximum fine of £1,000 applies for failure to pay the tax, though in practice fines are normally much lower.

The police have also been granted devolved powers to tow or clamp any vehicles a police officer or PCSO sees, that is unlicensed on a public road.

Also note that vehicles constructed before 1 January 1973 are eligible for a free vehicle licence under the "Historic Vehicles" legislation. This is due to the age of the vehicle and a presumption of limited mileage. Initially this was a rolling exemption applied to any vehicles over 25 years old, however the cutoff date was frozen in 1997. The change to "pre-1973" was unpopular in the classic motoring press, and a number of classic car clubs are campaigning for a change back to the previous system.

Future changes

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In the pre-budget report of 27 November 2001 the Government announced that VED for HGVs could be replaced, by a new tax based on distance travelled, the Lorry Road-User Charge (LRUC).^[2] At the same time, the rate of fuel duty would be cut for such vehicles. As at the start of 2007 this scheme is still at a proposal stage and no indicated start date has been given.

The primary aim of the change is that HGVs from the UK and the continent pay exactly the same to use British roads (removing the ability of foreign vehicles to pay no UK tax). However, it is also expected that the tax will be used to influence routes taken (charging lower rates to use motorways), reduce congestion (by varying the charge with time of day), and encourage low emission vehicles.

In June 2005 the government announced plans to adopt a similar road user charging scheme for other road vehicles, which would work by tracing the movement of all vehicles using a telematics system. The idea raised immediate objections on civil and human rights grounds that it would amount to mass surveillance. An online petition protesting this was started and reached over 1.8 million signatures by the closing date of 20 February 2007.

From April 2009 there will be a reclassification to the CO₂ bandings with the highest paying £455 per year and the lowest £0, the bandings have also been backdated to cover vehicles registered on or after 1 March 2001, meaning that vehicles with the highest emissions registered after this date pay the most. Pre 1 March 2001 vehicles will still continued to be charged according to engine size, above or below 1549cc.

From 2010 a new first year rate is to be introduced - dubbed a showroom tax. This new tax was announced in the 2008 budget, and the level of tax payable will be based on the vehicle excise duty band, ranging from £0 for vehicles in the lower bands, up to £950 for vehicles in the highest band.^[3][4]

History

Following the 1888 budget, two new vehicle duties were introduced — the locomotive duty and the trade cart duty (a general wheel-tax also announced in the same budget was abandoned). The locomotive duty was levied at £5 for each locomotive used on the public roads and the trade cart duty was introduced for all trade vehicles (including those which were mechanically powered) not subject to the existing carriage duty, with the exception of those used in agriculture and those weighing less than 10 cwt-imperial, at the rate of 5s. (£0.25) per wheel.^[5][6]

In the budget of 1909, the then Chancellor of the Exchequer, David Lloyd George announced that the roads system would be self financing,^[7] and so from 1910 the proceeds of road vehicle excise duties were dedicated to fund the building and maintenance of the road system.^[8]

Excise duties specifically for mechanically propelled vehicles were first imposed in 1921, along with the requirement to display a vehicle licence (tax disc) on the vehicle, under the 1920 Finance Act.^[8] At the same time, the 1920 Act set up an account, termed the Road Fund, to receive all of the proceeds of the new vehicle excise duties, and to be used to finance road improvements in place of the 1909 scheme.^[9]

The accumulated Road Fund was never fully spent on roads, and became notorious for being used for other government purposes. Hypothecation came to an end in 1937 under the 1936 Finance Act, and the proceeds of the taxes were paid directly into the Exchequer. The Road Fund itself, funded by government grants wasn't abolished until 1955.^[7]

Similar taxes in other nations

In the United States, such fees are called car taxes, vehicle license fees, or registration fees and are imposed on a state-by-state basis. For example, in Massachusetts, the excise tax is billed separately from registration fees, by the town or city in which the vehicle is registered, and was set at a fixed rate of 2.5% statewide by a 1980 law called Proposition 2½‎. Within some states, the fees may vary from county to county, as some counties have surcharges per vehicle. An example of this is Virginia's personal property tax. The state of New York, on the other hand, charges a tax based on the vehicle's weight, rather than on its value, which is charged at the time of registration renewal.

In France, the vignette was abolished for private vehicles in 2001.

In Spain, this tax is called the motor vehicle circulation tax.

In Brazil, the states collect an annual Vehicle Licensing Tax (Taxa de Licenciamento Veicular), which has a fixed value for each vehicle category ad determined by each state, in addition to other taxes.

In Hungary, since 2009 this tax is based on the vehicle's engine performance and the vehicle's age. Before this so-called performance tax, this tax was based on the vehicle's weight and unofficially it was called a weight tax.

In México, the federal government charges an annual Vehicle Tax depending on the brand, value and other vehicle characteristics in models up to 10 years old at the time of payment. This tax was created in 1961 and in 2006 represented about 1.6% of the total tax income (around 13 billion pesos).^[10]

See also

• British car number plates and Vehicle registration plate
• Congestion charge
• Velology – the study and collection of tax discs

References

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External links

• Current UK VED rates