Will the new vehicle tax changes cost you more?
If you’re thinking of buying a new car in the next 12 months, you might want to consider whether imminent vehicle tax changes (effective from April 2017) will make a bigger dent in your wallet.
As part of the Budget in July 2015, former Chancellor George Osborne announced changes to the Vehicle Excise Duty (VED) which come into effect from the 1st April 2017. Some UK motorists may find themselves paying lower road tax under the new calculation, but for others, currently paying £20 or £30 per year for driving low emission vehicles, the cost of road tax for a new car with similar emissions will rise to £140 after the first year.
A comparison of the old and new Vehicle Excise Duty rates
Cars registered on or after 1 March 2001 (but before 1 April 2017)
| C02 Emission (g/km) | VED due |
|---|---|
| 0 – 100 | £0 |
| 101 – 110 | £20 |
| 111 – 120 | £30 |
| 121 – 130 | £110 |
| 131 – 140 | £130 |
| 141 – 150 | £145 |
| 151 – 165 | £185 |
| 166 – 175 | £210 |
| 176 – 185 | £230 |
| 186 – 200 | £270 |
| 201 – 225 | £295 |
| 226 – 255 | £500 |
| Over 255 | £515 |
Cars registered after 1 April 2017
| CO2 Emission (g/km) | VED due in 1st year | Standard rate* |
|---|---|---|
| 0 | 0 | 0 |
| 1 – 50 | £10 | £140 |
| 51 – 75 | £25 | £140 |
| 76 – 90 | £100 | £140 |
| 91 – 100 | £120 | £140 |
| 101 – 110 | £140 | £140 |
| 111 – 130 | £160 | £140 |
| 131 – 150 | £200 | £140 |
| 151 – 170 | £500 | £140 |
| 171 – 190 | £800 | £140 |
| 191 – 225 | £1,200 | £140 |
| 226 – 255 | £1,700 | £140 |
| Over 255 | £2,000 | £140 |
* Cars over £40,000 pay £310 supplement for 5 years
Under the new VED scheme, cars registered after 1st April 2017 will only be rated on their carbon emissions for the first 12 months, after which a flat rate of £140 applies, except for cars with zero emissions and cars valued over £40,000 at first registration.
Winners and losers
- Zero emission vehicle owners will not pay any VED at all, so no change there
- Winners include owners of new vehicles with CO2 emissions above 141 g/km – the saving becomes more significant the higher the CO2 emission.
- Owners of vehicles valued at more than £40,000 lose out. They’ll be rated at £450 per year after the first 12 months, reverting to the flat rate of £140 after five years. The inclusion of a value weighting is a departure from previous ratings calculations which the government says will “ensure those who can afford the most expensive cars make a fair contribution”
- Owners of new cars with CO2 emissions between 101 g/km and 140 g/km will lose out. They currently pay between £20 and £130, so for some at the lower end of that scale, the increase to a flat rate of £140 will hit them hard.
Mr. Osborne defended the changes. He said,
“For standard cars – that covers 95% of all cars sold in the UK – the charge will be £140 a year. That’s less than the average £166 that motorists pay today.”
The Chancellor also announced that from 2020 the money raised by the new VED will go towards the Roads Fund, which is designated to pay for the building and maintenance of the UK road network.
Will the new tax calculation affect my current car?
No, the tax rate for vehicles registered before 1st April 2017 will be unaffected.
Mr. Osborne said:
“There will be no change to VED for existing cars – no one will pay more in tax than they do today for the car they already own.”
Why has the car tax calculation changed?
According to the government, the change has been made because, with new cars meeting increasingly lower EU emission targets, more and more vehicles now fall into the lower or zero-rated VED bands. This, they claim, is unfair to owners of older cars who generally pay higher rates.
Fairness aside, there’s undoubtedly an unspoken but pressing financial reason to reform the tax. Lower emission vehicles are certainly a good thing, but with less tax revenue being generated from vehicle excise duty, and a crumbling road network to maintain, it could be argued that the VED goal posts needed to be shifted to provide essential funding.
Motoring organisations have raised concerns about the changes. Mike Hawes, Chief Executive of the Society of Motor Manufacturers claims that the new flat rate will disincentivise take-up of low emission vehicles.
“New technologies such as plug-in hybrid, the fastest growing ultra-low emission vehicle segment, will not benefit from long-term VED incentive, threatening the ability of the UK and the UK automotive sector to meet ever stricter CO2 targets.”
However, Steve Gooding, director of the RAC Foundation, saw two things which will offset any increases that motorists might experience:
“One is that new car prices have dropped in real terms over many years and the other is that money raised from VED will be ring-fenced for road investment, something not seen since the 1930s.”
Whether the long-term improvement in road maintenance and infrastructure compensates for the many drivers who will pay more for their vehicle tax remains to be seen, but one thing is certain: low emissions vehicles no longer offer quite the financial incentive they once did.
