From April 2017, a new system will be introduced for the rates of Vehicle Excise Duty (VED). This means big changes to the car taxation system, including a switch to new road tax bands which affects anyone buying a new car from April this year.
Firstly, why are these changes being introduced?
In a nutshell - to boost the Treasury’s coffers. With falling CO2 emission levels from new cars in the UK, most new vehicle owners are paying very little or no road tax. The new VED regulations mean that all new cars will attract a higher VED for the first year of registration, with a standard rate (SR) of £140 a year for most vehicles thereafter.
How does it work?
As with the current system, new vehicles will be divided into 13 different CO2 bands with different amounts being due over the years of ownership.
Year one ownership
In the first year of ownership, zero emission vehicles, for example, electric cars, will be tax-free.
Other cars will attract a First Year Rate (FYR) cost varying from £10 - £2,000. You can see a full table of FYR costs here.
Year two of ownership
From the second year onwards, zero-emission cars costing less than £40,000 remain tax-free.
All other cars with a price tag up to £40,000 will be charged VED at a Standard Rate (SR) of £140 a year.
All cars costing £40,000 or over will be subject to an additional supplement fee of £310 each year during years two to five of ownership, regardless of their emissions – even currently tax-busting electric cars which cost more than £40,000.
How may you be affected?
AutoExpress cite the following example of how tax changes may affect motorists:
- Owners of a Peugeot 208 1.2 PureTech, registered before April 2017, currently pay £20 a year and this won’t change under current car tax rules.
- If you bought a brand new Peugeot 208 1.2 PureTech after April 2017 the VED would rise to £140 a year.
- Over three years, this is an equivalent of a 950% increase in car taxation costs.
Tax-wise, it will be cheaper to buy a new Peugeot 208 before the VED changes come in to force.
Big car winners
If, however, you plan to buy a fuel-guzzling vehicle that produces a high level of CO2 emissions but costs less than £40,000, it may be beneficial to buy the car in April 2017 after the new VED changes come in to force.
This is because the SR of £140 a year is typically lower than that which you would pay in tax now, making it more cost effective to run over a three or more year period from 2017 onwards, even allowing for the First Year Rate charge.
This is supported by an article from car experts Parkers who estimate that more than 90% of the extra income these changes will generate will come from drivers of low emission vehicles.
It says that loopholes in the system mean that the polluting Nissan 370Z, Vauxhall Insignia VXR SuperSport and Subaru WRX STI models would all be better off under the 2017 road tax proposals.
In summary, if you are thinking about getting a brand new car in the next year or so, then it may be wise to check out the VED implications as to whether it may be better buying before April 1st 2017 - if your finances allow - so you can take advantage of the existing rates – or not.