New tax rules could benefit DVLA to the tune of £38m

Law-abiding motorists will lose out in double ‘car tax’ payment issue

New rules introduced by the DVLA following the scrapping of the tax disc could result in motorists paying up to £38m more in tax when they sell vehicles privately.

With the tax disc being consigned to history as of 1 October, the option of passing on unused tax with the sale of a vehicle was removed meaning new owners have to tax the vehicle from the beginning of the month regardless of what day of the month they take ownership. Sellers, however, are only entitled to a refund for complete calendar months of unused tax.

Together these rules create a double tax benefit for the DVLA as any vehicle sold on any other day than the first of the month will result in the DVLA gaining a whole extra month of tax – the remaining unused tax for that month that cannot be refunded to the seller and the overlapping tax from the beginning of the month paid for by the buyer to cover the remainder of the month.

With 2.73m* used cars bought and sold privately in 2012* this would equate to £38m of extra tax revenue based on an average monthly car tax figure of £14.** A total of 7.1m used vehicles were sold in 2012 but the majority of these are sold via dealers or auctions so would not be affected by the ‘overlap’ issue.

RAC chief engineer David Bizley said: “It seems very harsh that law-abiding motorists are the ones being penalised under the new rules. While the average amount of monthly vehicle tax is not that great it still seems wrong that motorists should lose out and the DVLA should benefit.

“Surely in the 21st century we have the technology to work out the change of ownership to a specific date and then calculate the exact refund and new tax to the day, meaning that motorists don’t lose out and the DVLA receives the correct amount of tax, and no more.”

“Inevitably, the DVLA will claim that they have to carry out additional administration in order to refund unused tax to sellers, but surely this does not equate £38m a year, especially as it was estimated the scrapping of the tax disc would save £10m a year, presumably on administration, printing and postage.

“Perhaps this also explains why the DVLA does not seem overly concerned about the risk of increased evasion because they have insured against this by extracting extra tax revenue from motorists.”

In an RAC survey of more than 2,000*** drivers 63% feared that scrapping the paper tax disc will result in a rise in the number of untaxed cars on the roads while 44% believe it will actually encourage people to break the law.

The Department for Transport estimates that Vehicle Excise Duty (VED) – ‘car tax’ – evasion* affected only 0.6% of traffic on roads – 210,000 vehicles – in Great Britain in 2013 which equated to £35m in lost revenue**.

Ends

Notes to Editors:

* British Car Auctions Used Car Market Report 2013
** The Department for Transport estimates there were 210,000 untaxed vehicles in 2013 and £35m lost VED revenue which equates to £167 per vehicle. Average vehicle tax per month is therefore £14
https://www.gov.uk/government/uploads/system/uploads/attachment_data/file/263397/ved-2013.pdf

*** The RAC Opinion Panel survey of 2,157 motorists was carried out online from 11-17 August 2014