The short answer: the leasing company, built into your rental
On a standard personal contract hire agreement, road tax is typically included in the monthly rental. The leasing company owns the car, is its registered keeper, and arranges the tax. You pay for it as part of your monthly payment rather than as a separate bill.
Some quotes use the phrase "road fund licence included". That wording is a hangover from the old tax disc era. Road fund licence is simply an older name for vehicle excise duty (VED), which is what the tax is called today.
Do not assume, though. Terms vary between providers and product types, so read the agreement and the quote breakdown. If it says road tax is included, that is your confirmation. If it is silent, ask before you sign.
Why the leasing company deals with it
VED is a tax on the vehicle, and the registered keeper is the person responsible for making sure it is paid. On a lease, the finance company is the legal owner and is usually the registered keeper on the V5C logbook. You are the user of the car, not its keeper in the DVLA's records.
Because the duty falls on the keeper, the funder normally taxes the car on your behalf and recovers the cost through the rental. This is why you will not usually see a DVLA reminder arrive at your address, and why you do not normally need to log in to gov.uk to tax the car.
How HP and PCP differ on keeper, ownership and end of term
Hire purchase and PCP work differently. Under both, you are typically the registered keeper from the start and are responsible for taxing the car yourself, even though the finance company still owns it for part of the agreement. Our guide to PCH vs PCP explains the wider differences.
The point at which ownership passes also differs by route, and so do the end-of-term options. The table below sets out the usual position, but your own agreement is what counts.
| Route | Who owns the car during the agreement | Usual keeper and who taxes the car | End-of-term options |
|---|---|---|---|
| PCH lease | The funder, throughout | The funder is the keeper and arranges VED, recovered through the rental | Normally hand the car back. Buying is not usually part of a standard PCH, so check the agreement |
| Hire purchase (HP) | The finance company, until the final payment (and any option-to-purchase fee) is made | You are typically the keeper and tax the car | Make the final payment and the car becomes yours. Ending the agreement early has separate rules |
| PCP | The finance company, until the optional final payment is made | You are typically the keeper and tax the car | Make the optional final payment to own the car, return it (subject to mileage and condition terms), or part-exchange it, depending on the agreement |
What happens when the tax comes up for renewal
VED is paid for set periods. For most vehicles the options are a single payment covering 12 months, a payment covering six months, or monthly Direct Debit. Paying in instalments or for six months can cost more in total than paying for 12 months in one go.
On a multi-year lease the tax is renewed more than once, and the funder chooses how to pay. That choice is the funder's pricing decision. Any extra cost of not paying annually should not appear as a separate charge to you unless your agreement says it can, so check the wording.
Rates can change from one tax year to the next. The usual position on a fixed-rental PCH deal is that the rental you agreed stays the same for the term. Some contracts reserve the right to adjust the rental for changes in taxation, so look for that clause.
The rate for your specific car depends on factors such as when it was first registered, its CO2 emissions or fuel type, and its list price. Rather than rely on a figure in a guide, check the current rate on gov.uk or use the car tax (VED) calculator. For how the bands work, see car tax (VED) explained.
- You will not normally receive DVLA tax reminders, as they go to the registered keeper.
- If you move house, tell the leasing company, as it needs your current address on its records.
- If you get a letter about the car being untaxed, contact the leasing company straight away rather than ignoring it.
What is not covered by the road tax in your rental
Including road tax does not mean everything running-related is included. A standard PCH rental typically covers the use of the car, the finance cost and VED. It does not usually include fuel, insurance, tyres, parking, tolls or congestion charges.
Maintenance is a separate option on many agreements, so check whether servicing and repairs are bundled. Insurance is something you arrange yourself, and funders usually require fully comprehensive cover.
To work out what you will really spend, add these costs to the rental. The true cost of leasing calculator is a sensible place to start.
Illustrative example: how a tax band could change the rental
The figures below are illustrative only, to show the mechanism. They are not real tax rates or real quotes.
Imagine two cars on 48-month leases. Car A has an annual VED cost of £240 and Car B has £360. Over four years the funder expects to pay £960 on Car A and £1,440 on Car B. Spread across 48 months, that is £20 a month built into Car A's rental and £30 a month into Car B's.
On those assumptions, the higher tax band adds £10 a month, or £480 over the term, before anything else differs. In reality funders price the whole rental as one figure, so you will rarely see the tax shown separately. It is still a reason to compare quotes like for like, including whether road tax is stated as included.
Company cars: a different set of tax questions
For company cars, two separate taxes are often confused. VED is the road tax on the vehicle. Benefit in kind (BiK) is an income tax charge on the employee for having a car available for private use.
On a company lease, the employer or its leasing provider normally pays VED, as the vehicle is registered to the business or the funder. The employee does not typically tax the car. The tax the driver pays is BiK, collected through payroll via their tax code.
BiK depends on the car's list price, its emissions or electric range, its fuel type and the driver's income tax band. The percentage rates are set in advance for each tax year, so check the current figures on gov.uk. The guide to benefit in kind company car tax explains the mechanism.
Salary sacrifice schemes work differently again. The rental is deducted from your gross pay before income tax and National Insurance are calculated, so your take-home pay falls by less than the full rental. You still pay BiK on the car through your tax code, which offsets part of that saving. Whether VED is included depends on the scheme, so check its terms. See salary sacrifice car schemes explained for more.
Who is liable if something goes wrong
If a car is left untaxed, the DVLA takes action against the registered keeper. On a lease that is normally the funder, so the funder is liable to the DVLA as keeper.
Your agreement may then make you, as the driver, liable to the funder for any DVLA penalty, penalty notice or charge that arises from your use of the car or from something you failed to do, such as reporting a change of address. The funder may add an administration fee.
That driver liability to the funder can continue after the contract ends, if the matter relates to the period when you had the car. Notices can arrive months later, so keep records and respond to correspondence promptly.
Speeding fines, parking charges and similar notices follow the same principle. The funder is on record as keeper, and it normally passes the notice to the driver under the contract. These are separate from VED, but the route is the same.