The DVLA’s decision to block transfers of unused road tax when cars are sold is generating millions of pounds in extra revenue – at motorists’ expense.
Drivers are losing out to the tune of well over £40 million year as a result of changes to the way road tax is collected.
This is according to new figures from the AA, which highlight how much the government stands to gain from the recent overhaul of the Vehicle Excise Duty (VED) system.
'Death of the tax disc'
The reforms that came into effect last autumn were heralded as the "death of the tax disc" since motorists are no longer obliged to carry proof of taxation on their windscreens.
But it is the DVLA’s new policy of automatically cancelling any remaining VED when a car is registered to a new owner that is proving to be the most significant change.
Under the old system, when a vehicle changed hands the new owner would be allowed to benefit from any outstanding tax.
Cars were often sold second-hand on the basis they were "taxed until October", for example, adding to their value.
No more tax transfers
Since 1 October 2014, however, sellers automatically have any full months’ tax refunded by the DVLA.
Meanwhile, buyers are obliged to tax the vehicle from the start of the month in which it is purchased.
And it is this system which is resulting in millions of motorists paying what the AA calls “ghost tax”.
For example, if a car is sold on the 10th of the month in which its tax is due to run out, the seller gets no refund – and they will have lost around 20 days’ worth of VED.
The buyer, on the other hand, will be forced to pay for 10 days of VED they do not need.
On the basis that around 4 million used cars are sold through dealers every year and 2.7 million privately, the total annual loss to UK motorists will run at just under £39 million, the AA says.
This is based on an estimate of 30% of cars sold through dealers and 50% of those sold privately having tax outstanding, with an average monthly VED rate of £15.
But this calculation does not take into account the fact that buyers will have to pay tax from the start of the month.
Any transactions which take place after the 1st will make some financial loss to buyers inevitable.
"October’s abolition of the vehicle tax disc and a new process for transferring a vehicle’s 'keeper' is a massive change after 90 years of the old and familiar system," said Edmund King, AA president.
Sharp rise in clamping
"We are particularly disappointed that there was not an equally massive communications campaign to ensure the UK’s 35 million drivers got the message."
The lack of awareness of the changes to tax has resulted in many people unwittingly driving untaxed vehicles.
"The DVLA’s clampers are now netting 3,000 more untaxed cars a month than this time last year," King added.
"It is right that those who deliberately evade paying vehicle tax are caught and punished.
Tax disc confusion
"But it is a very harsh lesson for those who may not be aware a tax disc is now automatically cancelled when a vehicle changes ownership."
One of the main sources of confusion is that cars which were taxed before October last year may still be displaying what appears to be a valid tax disc.
But if the registered keeper has changed since then, the tax will have been automatically cancelled.
"AA members have contacted us expressing outrage that their apparently taxed car was not taxed despite it having a valid disc on display.
"The DVLA must adopt a cautious and more flexible approach to enforcement during this transition."
The DVLA argued that the new system "simplifies" the process of buying and selling secondhand vehicles.
A spokesman added: "Now all new keepers must tax the vehicle before they use it rather than having to find out if it’s taxed or whether the seller has had the tax refunded."