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52 Ways To Save Tax #29

Pay less tax

Drive more carefully and pay less tax

Research in 2014 found that Britain had the highest rate of fuel tax in Europe. Drivers pay around 73p in tax for every litre of fuel that they put in their tank, resulting in a substantial tax bill every year.

In the latest part of our “52 Ways to Save Tax” guide, we look at how you reduce the amount of fuel tax you can pay by driving more efficiently.

52 Ways to Save Tax – Part 29: Drive more efficiently

In the UK, just under two thirds of the price that you pay for a litre of petrol or diesel is tax. The current fuel duty payable is 57.95 pence per litre and then you also pay standard rate VAT at 20%.

Figures from the RAC show that, in 2016, tax accounted for 63.7 per cent of the price of a litre of diesel and 64.9 per cent of the price of a litre of petrol.

Assuming that a litre of petrol costs £1.15, you pay 74.6p of that in tax. A litre of diesel at the same price sees you pay 73.3 pence in tax.

What this means is that the more fuel you buy, the more tax you pay. So, reducing your fuel consumption could save you a significant amount in tax, depending on how much you use your vehicle.

5 ways to save money on fuel

There are lots of ways that you can drive more efficiently. By doing so you will use less fuel, meaning that for every litre of fuel you save you will pay around 74p less in tax. If you rack up the miles, this could result in significant tax savings.

Here are five easy ways for you to drive more efficiently and to cut the amount of fuel tax you pay.

  1. Change gear faster

The higher the gear that you drive in, the lower your engine speed. This can improve fuel efficiency and so it pays to change up a gear whenever you can, without labouring your engine.

Try to change gear earlier when you are accelerating, and don’t wait until the rev counter is in the red before changing up.

  1. Keep your car aerodynamic

The fuel consumption of your vehicle is partly determined by how aerodynamic it is. So, try to avoid driving with boxes or bikes on the roof and keep your windows and sunroof closed if you can.

Driving faster will also increase the wind resistance you encounter, causing your vehicle to use more fuel.

  1. Drive more slowly

Reducing your speed from 62 mph to 56 mph will reduce your fuel consumption by around 10 per cent whilst the AA says that driving at 70 mph instead of 85 mph on motorways decreases petrol consumption by between 20 and 25 per cent.

  1. Reduce excess weight

Every additional kilogram of weight in your vehicle affects your fuel efficiency. So, always remove heavy objects from your vehicle when you are not using them.

In addition, the weight of the fuel itself can affect economy. Some experts suggest putting a smaller amount of fuel in your vehicle more often, rather than filling up your tank in one go.

  1. Have your vehicle regularly serviced

A well-tuned engine can improve your fuel economy. Having your car regularly serviced and using good quality oil can ensure your engine is working well and minimising the amount of fuel it uses to function.

In addition, correctly inflated tyres can help your fuel consumption. A tyre that is under inflated can reduce your fuel economy, meaning greater fuel costs and tax bills.

52 Ways to Save Tax #6

In the next part of our series ‘52 Ways to Save Tax’ we look at a way that you can both save tax and help the environment. Keep reading to find out how driving a more eco-friendly car can not only help protect the planet but can also save you money.

52 Ways to Save Tax – Part 6: Drive A Greener Car

If your car was first registered before March 2001 then your road tax is determined by the engine size of your car. However, if your car was first registered after March 2001 then the amount of road tax that you pay will depend on its exhaust emissions.

Since 2001, the road tax that you pay on a car depends primarily on its CO2 emissions. You can establish a car’s CO2 emissions in one of two ways:

  • If you own the car then this information is on your Registration Certificate (the V5C form)
  • If you don’t own the car you can ask your dealer or you can head online to the DVLA website to check out which band a certain make and model will fall into

In simple terms, the lower your car’s CO2 emissions, the lower your tax bill. Cars which have very low emissions (under 121g/km) pay a very low rate of tax (up to £30 in tax year 2014/15). However, if your car pumps out lots of CO2 then you may end up paying several hundreds of pounds a year in road tax.

Choose a car in a low band to reduce your tax bill

If you want to reduce your tax liability it can pay to buy a car with low emissions. You’ll pay very little tax on cars in bands B and C. And, cars in band A – with CO2 emissions of under 100g/km – don’t attract any tax at all.

Cars that you can choose in these low bands include:

  • Band A – Some versions of the Ford Fiesta and Fiat 500, VW Polo Bluemotion, Audi A1 diesels, Hyundai i10, i20 and i30 diesels, Nissan Leaf,
  • Band B – Differently engine versions of the cars in Band A plus some versions of the Vauxhall Corsa and Astra, Diesel and EcoBoost versions of the Ford Focus, Nissan Note, Audi A3 2.0 TDi
  • Band C – Appropriately powered versions of the SEAT Ibiza, Skoda Yeti, Nissan Qashqai, Ford Mondeo, Mazda CX-5 and BMW 5-series

Save money on first registration

As well as reducing your tax bill on an annual basis, choosing a car with low emissions can help you avoid a significant tax bill on first registration.

In the 2014/15 tax year, any new car with CO2 emissions of under 131g/km does not attract any vehicle tax on first registration.

If you consider that a car which produces over 255g/km of CO2 incurs a tax bill of £1,090 on first registration, you can save hundreds of pounds in tax by buying a more environmentally friendly model.

How Much Tax Do I Pay?

As Benjamin Franklin once famously remarked: “In this world nothing can be said to be certain, except death and taxes.”  We pay tax on everything from our income to our home and our groceries and so our guide looks at how much tax you can expect to pay.

Income Tax

There are several different tax bands and rates depending on your income.  The question “How much tax do I pay?” will therefore depend very much on your specific personal circumstances such as the tax allowances that you are eligible for and where your income comes from.

Typically, you’ll pay the following tax in the 2011/12 tax year:

  • 0% on the first £7,475 that you earn (this is your Personal Allowance)
  • 20% on the next £37,400 that you earn
  • 40% on the next £112,600 that you earn
  • 50% on anything over this

National Insurance Contributions

The amount of National Insurance contributions that you pay will depend on whether you are employed or self employed.

If you’re employed you pay Class 1 National Insurance contributions at the following rates:

  • if you earn more than £139 a week and up to £817 a week, you pay 12 per cent of the amount you earn between £139 and £817
  • if you earn more than £817 a week, you also pay 2 per cent of all your earnings over £817

If you’re self-employed you pay Class 2 and Class 4 National Insurance contributions at the following rates:

  • Class 2 National Insurance contributions are paid at a flat rate of £2.50 a week
  • Class 4 National Insurance contributions – you pay 9 per cent on any profits between £7,225 and £42,475, and a further 2 per cent on profits over that amount

VAT

Value Added Tax (VAT) is a tax that you pay when you buy certain goods or services.  Most goods and services in the UK are subject to VAT and the tax is payable at one of three rates:

  • Standard rate (20%) – Most goods and services attract VAT at this rate
  • Reduced rate (5%) – On certain goods such as children’s car seats and gas and electricity for your home
  • Zero rate (0%) – There are some goods on which you don’t pay any VAT such as most foodstuffs, books, children’s clothes, magazines and newspapers

Other Taxes

As well as these three main taxes there are other taxes that you may pay.  Again, the rates vary depending on your specific circumstances.

The main other taxes are:

  • Inheritance Tax (IHT) – Payable if your estate (including any assets held in trust and gifts made within seven years of death) is valued over the current Inheritance Tax threshold (£325,000 in 2011-12).  The tax is payable at 40%
  • Capital Gains Tax (CGT) – Payable on capital gains’ (any profit that you make when you sell or give away an asset if it has increased in value.  The tax is payable at 10%,18% or 28% depending on your circumstances
  • Road Tax – Payable if you want to take a vehicle on a public road.  The rate varies from £0 to over £1,000
  • Council Tax – Payable based on the value of your home.  The rate payable is determined by your local authority

How Much Is My Car Tax?

If you have a car that you use on a public road in the UK, you are obliged by law to buy road tax and to display a tax disc.

In the past, the cost of car tax was the same for everyone.  However, recent changes mean that there are now several different car tax bands depending on the age of your car and on its carbon dioxide (CO2) emissions.  Our guide answers your question ‘how much is my car tax?’

Cost of car tax if your car was registered before 1 March 2001

If your car was registered before 1 March 2001 there are two car tax bands depending on the engine size of your car.

If your engine size is less than 1549 cc you’ll pay £130 for 12 months tax and £71.50 for 6 months.  If it’s over 1549cc you’ll pay £215 for 12 months and £118.25 for 6 months tax.

Cost of car tax if your car was registered on or after 1 March 2001

Car tax rates for vehicles registered on or after 1 March 2001 are split into 13 bands depending on the CO2 emissions of your car.  The lower the CO2 emissions, the lower the car tax that you pay.

You can find out the CO2 emissions of your car by checking your registration certificate (V5C) or by entering the make/model and registration number of your car into the online ‘vehicle enquiry’ section on DVLA’s Electronic Vehicle Licensing website.

The information below shows the costs of car tax depending on your band and whether you want 6 or 12 months tax.

  • Band A (up to 100 g/km) – No car tax payable
  • Band B (101 to 110 g/km) – £20 car tax per year (no 6 month option)
  • Band C (111 to 120 g/km) – £30 car tax per year (no 6 month option)
  • Band D (121 to 130 g/km) – £95 car tax per year or £52.25 for 6 months
  • Band E (131 to 140 g/km) – £115 car tax per year or £63.25 for 6 months
  • Band F (141 to 150 g/km) – £130 car tax per year or £71.50 for 6 months
  • Band G (151 to 165 g/km) – £165 car tax per year or £90.75 for 6 months
  • Band H (166 to 175 g/km) – £190 car tax per year or £104.50 for 6 months
  • Band I (176 to 185 g/km) – £210 car tax per year or £115.50 for 6 months
  • Band J (186 to 200 g/km) – £245 car tax per year or £134.75 for 6 months
  • Band K (201 to 225 g/km) – £260 car tax per year or £143 for 6 months
  • Band L (226 to 255 g/km) – £445 car tax per year or £244.75 for 6 months
  • Band M (over 255 g/km) – £460 car tax per year or £253 for 6 months

Cars first registered after 1 April 2010

Brand new cars registered after 1 April 2010 with CO2 emissions of over 130 g/km attract a different rate of car tax in the first year.  For example, the tax on a brand new car with CO2 emissions of 190 g/km would be £445 in the first year, compared to £245 if the car was several years old.

How Much Is Car Tax?

If you use a vehicle on the roads in the UK then you will have to have a valid tax disc for that vehicle.  Whether you drive a car, van, motorcycle, bus or articulated lorry you will need to have a valid tax disc.

Our guide looks at the cost of road tax for cars from 1 April 2011.

Cars registered before 1 March 2001

If your car was registered before March 2001 there are just two rates of road tax, depending on the engine size of your vehicle:

  • Engine size is under 1549cc you’ll pay £130 for 12 months tax and £71.50 for 6 months
  • Engine size is over 1549cc you’ll pay £215 for 12 months and £118.25 for 6 months

Cars registered after 1 March 2001

Vehicle tax rates for cars registered on or after 1 March 2001 are now split into 13 bands depending on the car’s CO2 emissions.  The amount of road tax you’ll pay depends on which band your car is in. The lower the CO2 emissions from your car, the lower the car tax payable on it.

To find out the CO2 emissions of your car, you can either check your registration certificate (V5C) or enter the model and registration number of your car at the DVLA website.

For cars with CO2 emissions up to 100g/km, no car tax is payable.  There are then 12 further bands and the cost of car tax rises as the CO2 emissions increase.

For example, a standard 2 litre diesel Toyota Corolla registered in 2004 would be in band G with 151g/km CO2 emissions.  You would pay £155 for 12 months tax on this vehicle, or £85.25 for 6 months.

Cars with CO2 emissions under 225 g/km (or cars with higher emissions registered before 23 March 2006) will pay a maximum of £250 for 12 months tax.

Cars with high CO2 emissions pay significantly more road tax under the current scheme.  Cars emitting 226-255 g/km of CO2 pay £425 for 12 months car tax while those emitting over 256 g/km pay £450 every year.

Enhanced car tax for cars first registered after 1 April 2010

Brand new cars registered after 1 April 2010 with CO2 emissions of over 130 g/km attract a higher rate of car tax in the first year.

For example, the tax on a brand new car with CO2 emissions of 210 g/km would be £580 in the first year, compared to £250 if the car was several years old.

Car Tax Basics Everyone Should Know

Every registered vehicle in the UK must be taxed if it is used or kept on a public road. If you don’t tax your vehicle it could be clamped or removed.

Our guide looks at five of the basics of car tax that everyone should know.

What you need to tax your vehicle

In order to tax your car or other vehicle you’ll need several documents.  These are:

  • An MOT certificate (if your car is over three years old)
  • A completed V10 or V11 form
  • Your vehicle’s registration certificate (of the ‘new keeper’ section)
  • A completed application or a Vehicle Registration Certificate (form V62) if you don’t have such as certificate
  • Proof your insurance (at least third party)
  • Payment (unless your vehicle is exempt)

Insurance and MOT

Always make sure that your insurance certificates and MOT certificate are valid on the day you want your tax disc to start.  If you don’t, you will be unable to tax your car.

How to display your tax disc

Your tax disc has to be displayed in the vehicle.  It should be on the passenger side of the vehicle’s windscreen or on the kerb side of the vehicle (for example on a motorcycle).

A tax disc has to be displayed on the vehicle it relates to and cannot be transferred between vehicles.  Your tax disc is valid from the first day of the month you have taxed from and so you shouldn’t display your new tax disc until your old one has expired.

The maximum penalty for failure to display a current tax disc is £200.

Ensuring you don’t pay car tax if you don’t own the car

If you don’t tell the Driver and Vehicle Licensing Agency (DVLA) that you have sold, exported, scrapped or transferred your vehicle you will still be responsible for taxing it.  When you dispose of your vehicle make sure you send the appropriate part of the registration certificate to the DVLA.

Failure to tax your vehicle

If you don’t tax your vehicle (or complete a Statutory Off Road Notification (SORN)) you could be liable for a fine and your vehicle could be seized.

The DVLA carries out roadside checks as well as a computer check each month to identify those vehicles without a valid tax disc.  If you don’t have a valid tax disc you could face an automatic penalty of £80 as well as a minimum fine of £1000. In addition, your vehicle could be clamped, impounded or even crushed.