A recent study revealed that a significant number of British drivers are unknowingly overpaying the DVLA for their Vehicle Excise Duty, commonly known as car tax, due to a hidden 5% surcharge on monthly direct debit payments. This additional charge impacts individuals who opt to split their car tax payments into installments, resulting in a higher total cost.
Research conducted by Go.Compare Car Insurance last year exposed that nearly 39% of motorists were unaware of the extra fee associated with this payment method. Among vehicle owners paying their car tax monthly, approximately 5.6 million were oblivious to the surcharge included in their tax bill.
The cumulative effect of the 5% surcharge is substantial, with British drivers collectively paying an extra £56.3 million annually without realizing it.
Nearly half (49%) of these drivers admitted they would change their payment method if informed about the surcharge. Consequently, 2.9 million motorists have inadvertently paid more than necessary, amounting to a potential saving of £27.5 million, as estimated by the research team.
To illustrate the impact, Go.Compare emphasized that a car owner paying £1,000 per year in car tax through monthly installments would face an additional £50 charge annually. Over five years, this equates to £250 wasted on avoidable fees.
Those with higher vehicle tax bills are at even greater risk of overspending. Recent research has shown that drivers choosing monthly or six-monthly payment plans for vehicle tax are unknowingly incurring an automatic surcharge, a cost not applied to one-time annual payments, catching out those on installment plans.
Despite the added expense, the convenience of direct debit often outweighs the drawbacks for many drivers. However, for those financially able, paying the annual amount in a lump sum can help avoid unnecessary charges—no need to change vehicles, reduce mileage, or shift tax brackets.
Tom Banks, a car insurance expert at Go.Compare, emphasized the importance of understanding the costs associated with different payment methods. He recommended that drivers who can afford it consider switching to a single annual payment to save on the surcharge.
While past surcharges cannot be reclaimed, switching to an annual payment at the next renewal can prevent future unnecessary costs. The figures concerning the unawareness of the surcharge were derived from a YouGov survey of 2,000 UK adults, conducted on December 19, 2024. The 5% monthly direct debit surcharge calculation was based on standard rates for cars registered on or after 01/04/17, according to DVLA data.
This calculation considered the proportion of vehicle owners using this payment method who were unaware of the surcharge (39.08%) and the percentage of drivers willing to change their payment method if informed about the surcharge, as indicated in the survey.
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