If your vehicle is registered in the UK, you need to pay road tax. Road tax is also known as vehicle excise duty, vehicle tax or car tax.
Road tax is calculated based on the official CO2 emissions of the car, its engine and its fuel type. The Government has prescribed 13 tax bands between 'A' to 'M' on the basis of CO2 emissions in grams for each kilometre. Other factors determining the road tax are the year of registration of the vehicle as cars registered after 1st April 2010 have to pay a higher road tax. For vehicles using alternative fuels, the road tax is marginally lower when compared to petrol and diesel cars.
The cars with the lowest carbon emission fall in the tax band 'A' and the ones with the highest emission are in band 'M'. Vehicle owners in tax band 'A' do not have to pay any road tax. Electric vehicles such as BMW i3, Tesla Model S, Renault ZOE and Twizy, and Nissan Leaf fall under the tax band 'A'. For vehicles in tax band 'M,' the road tax can go be as high as £1,090 per year.
If your car is between bands B to D, you don't have to pay road tax during the first year.
Let's look at Ford Fiesta, which is expected to be 2014's top selling car, and the different road tax payable on the basis of the model and the engine type.
You cannot avoid road tax, so it is better to pay it on time. As per DVLA records, in 2013 99% of UK population paid their road tax on time. The only way you can save on your road tax expense is by opting for an eco-friendly car.
Use our household budget calculator to see how road tax affects your household's finances.