Why are Road Tax rates changing?

Did you know that Road Tax (Vehicle Excise Duty) is changing this year? The changes will affect every new car registered on or after April 1st 2017. Here is our handy guide to what all the changes are and what they might mean to you if you are considering changing your vehicle this year.

Under the current system, only vehicles that produce more than 110g/km of CO2 or over are subject to paying any Road Tax, with the amount increasing as the CO2 emissions increase.  Vehicles with exhaust emissions exceeding 166g/km are also subject to a higher first year Road Tax. The idea was to encourage people to buy vehicles with lower emissions rates (well, when we can trust the advertised emissions rates from manufacturers!).

Initially it was anticipated that only electric, hybrid and specific low emission cars would fall into this category. However, as technology has advanced, many more mainstream choice vehicles became tax exempt. With up to three quarters of new cars purchased predicted to be exempt under the current scheme, this left a gaping hole in the tax revenue made from Vehicle Excise Duty which the Chancellor described as ‘unsustainable’.

George Osbourne announced the overhaul to the existing system in the July 2015 Budget along with a commitment that EVERY penny made from Vehicle Excise Duty will be ringfenced into a new Road Fund to pay for roads and maintenance by the end of this decade (could this signal the end of the pothole crisis?).

How will the new system work?

The new system will continue to have the 13 band CO2 emission scale, however they will now be sub divided into 3 bands, Zero Emission, Standard and Premium and the amount of tax will be calculated by a combination of the CO2 emissions and the OTR cost. In the first year, all cars, except zero emission cars will pay road tax. A higher first year rate will apply to all vehicles over 110g/km CO2 and the more C02 your car emits, the more you will pay. From year 2 onwards all cars, except zero emission cars will pay a 'Standard' Road Tax fee. Perhaps the most significant changes will be to vehicles costing more than £40,000, which will attract an additional ‘Premium’ fee of £310 per year for years 2 – 5.

NEW VED System - cars registered after 1st April 2017

 

     

Emissions (g/CO2/Km)         

0

First Year Rate         

£0.00

Standard Rate Year 2 >     

£0.00

Total inc Premium Rate Cars > £40k (Years 2-5) .

£310.00

1-50

£10.00

£140.00

£450.00

51-75

£25.00

£140.00

£450.00

76-90

£100.00

£140.00

£450.00

91-100

£100.00

£140.00

£450.00

101-110

£120.00

£140.00

£450.00

111-130

£160.00

£140.00

£450.00

131-150

£200.00

£140.00

£450.00

151-170

£500.00

£140.00

£450.00

171-190

£800.00

£140.00

£450.00

191-225

£1,200.00

£140.00

£450.00

226-255

£1,700.00

£140.00

£450.00

over 255

£2,000.00

£140.00

£450.00

 

What does this mean for me?

It’s important to remember that the changes only apply to cars registered after April 1st this year. If you currently pay little or no road tax with your current car, you will continue to do so for the duration you own the vehicle. The changes will only affect you if you propose to buy a new car or second hand car that is registered on or after 1st April 2017. It will mean that some vehicle currently exempt from Road Tax due to no or low emissions, will incur the Premium rate for the first five years of the cars life, if the OTR cost of the car exceeded £40, 000 when bought from new. Conversely, some higher emissions vehicles will in fact pay less road tax under the new scheme if the vehicle cost less than £40, 000 OTR from new. It will be important to do your homework and be well versed on the new scheme when considering a new car to avoid a nasty surprise.