A recent study has revealed that 2.9 million UK motorists are overpaying the DVLA for their Vehicle Excise Duty, commonly known as car tax, due to a lack of awareness about a 5% surcharge applied to their payments. This additional cost affects drivers who choose to pay their car tax through monthly direct debit instalments, ultimately resulting in a higher overall expense.
Research conducted by Go.Compare Car Insurance found that nearly 39% of drivers were unaware of this extra charge. Among all vehicle owners who opt for monthly payments, approximately 5.6 million were uninformed about the added fee included in their tax.
The 5% surcharge can significantly add up over time. Collectively, UK drivers unknowingly pay an extra £56.3 million each year due to this hidden cost.
Almost half (49%) of affected motorists admitted they would switch to a different payment method if they had known about the surcharge. As a result, 2.9 million drivers ended up paying more than necessary, leading to a potential loss of £27.5 million in avoidable fees, according to the study.
To put it into perspective, Go.Compare highlighted that a motorist paying £1,000 annually in car tax through monthly instalments would incur an additional £50 per year in surcharges. Over five years, this would total £250 in unnecessary costs.
People who pay higher car taxes might be wasting even more money. According to studies, drivers who choose for the more convenient monthly or biennial car tax payment plans are unintentionally paying more because of an automated surcharge. Because it isn't added to annual lump sum payments, drivers on installment plans are unaware of the additional price.
Despite the unnecessary extra expense, many drivers still opt for direct debit payments due to their convenience. However, for those who can afford it, paying the full annual amount upfront eliminates these additional charges—without the need to change vehicles, adjust mileage, or move into a different tax band.
Tom Banks, a car insurance expert at Go.Compare, explained: *“Setting up a direct debit is a simple and convenient way to pay for car tax, but many motorists don’t realise they are paying extra for that ease. While spreading the cost through monthly payments makes sense for some, those who have the means to pay in full should consider switching to a one-off annual payment to avoid the surcharge.
“Even if monthly instalments suit your budget better, it’s crucial to be aware of the extra costs involved and how they add up over time. Reviewing your payment method before your next renewal could be an easy way to cut unnecessary expenses and ensure you're getting the best deal. Although past surcharges cannot be reclaimed, switching to an annual payment at your next renewal can help you avoid any future additional fees.”
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The statistic regarding drivers unaware of the surcharge was derived from a YouGov survey conducted on December 19, 2024, involving a randomly selected group of 2,000 UK adults.
The 5% surcharge applied to monthly direct debit payments was calculated based on the standard tax rate for cars registered on or after April 1, 2017, according to DVLA data. To determine the additional monthly charge, the annual amount was divided by 12, resulting in an extra cost of £15.83 per month.
This figure was then adjusted by factoring in the proportion of vehicle owners using this payment method who were unaware of the surcharge (39.08%). It was further multiplied by the percentage of drivers who stated they would change their payment method if they had known about the additional charge, as reported in the survey.
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