Although vehicle taxation had been in place for many years, it wasn't until the implementation of the Finance Act 1920 that the issuing and displaying of tax discs became a legal requirement, and from 1 January 1921 motorists were obliged to display a disc on the vehicle. The option was available for quarterly and annual discs.
Originally, the discs had no perforations to separate them from the outer margins (selvedge), and as a result early discs were often poorly cut out. Any disc with selvedge still attached, but particularly these early ones, are more valuable to a collector.
In 1923 rules were changed so that expired tax discs had to be destroyed. As a result, it can be harder to find discs dating from this period
Interesting discs to watch out for include:
Those from 1925 with advertising on the reverse
Those allocated to agricultural machines, known as Farmers Discs
Emergency discs, issued when normal discs became restricted
Welsh and Northern Irish issues
Even more information on this fascinating subject can be found in the book Trade And Collect Tax Discs.