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What happens to the road tax when you sell your car?

The number of untaxed vehicles has doubled since new rules came into force, potentially costing the UK £80 million a year.

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The process for paying road tax when buying a used car in the UK changed two years ago, yet it still causes confusion among motorists today. We’ve updated this article from 2014 to bring you an up-to-date explanation of how it all works.

Before October 2014, a used car could be sold with any existing road tax (officially known as vehicle excise duty or VED) being carried over to the new owner. So if you bought a car which still had three months of tax left, you didn’t have to renew it for three months.

It was simple, straightforward and everybody understood how it worked. So obviously the DVLA decided to completely screw the whole thing up.

Starting in October 2014, road tax no longer carries over when you buy or sell a used car. Instead, the new owner has to purchase road tax before taking possession of the vehicle from the previous owner.

Understandably, this creates more hassle for buyers, as you have to either go online or call the DVLA and pay road tax before you can drive off in your car – even though the previous owner has already paid road tax for the vehicle.

Because the DVLA is antiquated and unable to cope with the 21st-century world we live in, it is only able to process road tax on a monthly or annual basis. So if you buy a used car on the 15th of the month, you have to pay road tax for the whole month.

But the previous owner will not be refunded for road tax already paid for that month. Therefore the DVLA has effectively double-taxed the vehicle for that month.

V5C logbook, UK registration certificate for road tax

Even if you’re giving your car to another family member at the same address, the tax won’t carry over. Both buyer and seller have to tax the car for a full month each time a used car is sold or transferred.

More than eight million used cars are sold each year in the UK. Obviously not all of them are already taxed at time of purchase, but it still means that the DVLA is effectively stealing millions of pounds from British motorists each year by double-taxing sold used cars for a month.

Road tax when selling a car: what do you need to do?

Since you can’t sell a car with road tax anymore, the existing tax will be cancelled as soon as the DVLA processes your notification of the ownership being transferred.

As a seller, you need to notify the DVLA immediately when you sell your car (or transfer ownership) to someone else. You will only receive a refund for any whole months of road tax outstanding, so if you sell your car on the first of the month then you still have to pay for that full month of road tax.

Unlike practically every other organisation on Earth, the DVLA can’t grasp the concept of billing by day rather than by month. It’s perfectly happy to rip off British motorists with the government’s blessing.

If you fail to notify the DVLA that you are no longer the registered keeper of the vehicle, you could be fined up to £1,000.

Road tax when buying a car: what do you need to do?

When you buy a used car, you must pay road tax before driving off in the vehicle. Even if your car is just parked in the street, you must pay road tax.

You can pay your road tax:

  • Online (24 hours),
  • By phone on 0300 123 4321 (24 hours)
  • At a post office (during business hours only, and not every post office handles vehicle tax).

Unhelpfully, you also can’t set up a direct debit over the phone; only online or in person.

If you fail to pay the DVLA before driving away, you could be fined £80, or a maximum £1,000 if the fine is not settled within 28 days. And of course, you won’t be insured if you’re not taxed.

No road tax = no insurance

If your car is not taxed then it will also not be insured (unless you are driving it directly to an MOT station). So not only are you liable to be fined, but if you are involved in an accident or have your car stolen, your insurance will not be valid.

If your scrap or export your car, you need to notify the DVLA and a apply for a Statutory Off Road Notification (SORN). This remains applicable as long as the car is off the road. However, you can’t put the car back on a public road – even if it’s just parked on the street – until you pay road tax again.

How are road tax transgressions enforced?

When changing the 2014 road tax rules, the DVLA decided to do away with the familiar round tax discs, which previously had to be displayed in every car’s windscreen. So it’s no longer possible for a policeman to notice the tax disc on your car is out of date and whack you with a fine. However, that very rarely happened anyway.

Today, road tax checks are all done electronically. Police use Automated Number Plate Recognition (ANPR) cameras to catch owners of untaxed vehicles on the road, and have been doing so long before the tax disc was taken out of circulation.

The DVLA makes vehicle database checks on vehicles every month. It can clamp your vehicle if you haven’t paid your road tax, and then force you to pay a release fee of £100 to be unclamped. Alternatively, your car may be impounded. That means you’ll have to pay a fee of £200 to release your car – and prosecution costs and fines may also apply.

Initial chaos has now subsided, but at a cost

Predictably, turning a perfectly simple and sensible system into a far more complex one caused widespread chaos throughout the UK. Many thousands of used car buyers were caught out by the changes, and many motor traders were confused by the changes as well.

This resulted in many used cars going untaxed for several months until owners realised (usually about the time their insurance or next road tax bill was due).

Organisations including the RAC warned that the number of untaxed cars would skyrocket under the new system. Yet the DVLA rubbished those claims, describing them as “nonsense”. So no-one was surprised (except the DVLA, presumably) when that’s exactly what happened.

The number of unlicensed vehicles more than doubled in the year after the new rules were introduced, with more than 560,000 untaxed vehicles costing the country a claimed £80 million. What’s more, two years later it appears that the system is still failing, with hundreds of millions of pounds lost.

Clearly, the massive increase in untaxed vehicles is unlikely to be the result of hundreds of thousands of motorists suddenly deciding to become VED-dodging criminals. The figures suggest that the system is at fault. Of course, getting the DVLA to accept its failure is unlikely.

There’s also the probability that at least some of the increase is down to vehicles no longer carrying tax discs in their windscreens, so owners are less likely to notice if their tax has expired.

The DVLA claimed that doing away with tax discs would save the country millions. But so far it looks like it has lost far more than it saved.

This article was first published in September 2014 and has been updated in October 2016 to reflect the number of questions we continue to receive about the workings of the UK vehicle registration process.

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Stuart Masson
Stuart Massonhttps://www.thecarexpert.co.uk/
Stuart is the Editorial Director of our suite of sites: The Car Expert, The Van Expert and The Truck Expert. Originally from Australia, Stuart has had a passion for cars and the automotive industry for over thirty years. He spent a decade in automotive retail, and now works tirelessly to help car buyers by providing independent and impartial advice.