Road tax, also known as road fund licence, vehicle excise duty (VED), vehicle tax, car tax, and the previous tax disc, is an annual government fee paid by anybody who owns a roadworthy vehicle. The DVLA is in charge of enforcing it. The amount you pay is determined on the vehicle and the amount of CO2 it generates. It is not formally termed road tax and has not been for decades, but it is now a colloquial word that most people are familiar with.
However, since the purpose of this blog is to discuss what road tax truly pays for (and does not pay for), accountants in London keep the description concise.
The road tax has been in place for nearly a century, having been implemented in 1888 when early autos were not yet available, but it was significantly revised in 1920 as autos became more popular.
Where does the money from the road tax end up?
Many people believe that road tax money goes to the local council or the Department of Transport, but this is not the case. When road tax is paid, it is deposited in the Exchequer alongside other taxes such as council tax, corporate tax, and so on. The Exchequer is not a single individual, but rather a department that is ultimately led by the Chancellor of the Exchequer, who is Rishi Sunak at the time of writing.
As a side note, the Department of Transport receives a budget from the Government each year, which is how they are essentially “compensated.”
What is the purpose of road tax?
The usage of the term “road tax” is deceptive, and it is possible that this is one of the main reasons why so many people are perplexed about what “road tax” pays for. Road tax, sometimes known as VED, is a tax levied on motor vehicles rather than on roadways. VED is unrelated to roads in any way, which is a good place to start explaining what road tax pays for.
Because road fund licences are paid to the Exchequer, it might be claimed that road tax pays for everything and nothing at the same time.
The simplest approach to understand what road tax pays for is to consider what must be paid for on a national and local level. Cheap tax return accountants will help and guide you through each step about paying taxes.
