posted 5 years ago

Should I Pay My Car Tax By Direct Debit?

We investigate which method of payment saves you most

On October 1st 2014, we waved goodbye to the paper tax disc.

It was one of a number of changes designed to save the Government money and make paying for road tax easier. The ability to pay road tax monthly by Direct Debit was another major change. But it has also brought about the most confusion too.

Just how much does it cost drivers to use this more convenient way of paying? Are we paying through the nose for the additional convenience?

Paying in full

Previously, drivers only had the option of paying for a full year or paying for tax every six months. People who opted to renew every six months paid a 10% premium on the cost of an annual tax disc. Now you can pay by Direct Debit monthly or twice a year, meaning that the money will automatically be taken out of the bank and your car will be taxed without you having to do anything further.

Monthly Direct Debit

Paying monthly by Direct Debit will incur a 5% charge above the full payment of the tax disc, which isn’t bad at all. The most any car driver will currently pay in extra fees is £25, and that is for a vehicle which is rated in Band M,  which means the vehicle emits over 255kg of CO2 per kilometre. That pushes the price up from £500 a year to £525. On a sliding scale between the lowest and highest emitting cars, drivers pay between £0 and £500 in road tax and between £1 and £25 for the privilege of paying monthly by Direct Debit.

Paying By Direct Debit twice a year

To add to the confusion, people can also opt to pay by Direct Debit twice a year rather than on a monthly basis. By way of example, Drivers of cars in Band H (166 to 175 g/km) will pay £215.25 via monthly Direct Debit instead of the outright yearly figure of £205.

Paying via traditional methods for a tax disc twice year (in a Post Office or via online banking) costs £225.50 in total. However, set up a Direct Debit to pay Band H tax twice a year and the total cost is £215.26, which is only a penny more than paying monthly by Direct Debit. So no matter what way you look at it, paying by Direct Debit is a much easier option and doesn’t incur too much of an additional cost either. It could also help you to budget by removing the need to find large amounts of money all in one go.

By paying by Direct Debit, you also eliminate the risk of getting a fine of up to £1000 for driving your car without road tax.

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