Here’s what you need to know
A lot of things get announced in the Government’s annual Budget. Some, like duty rises on cigarettes and beer, come into effect more-or-less immediately.
But many other measures don’t kick in until the next tax year and can easily get forgotten about. This could be particularly true if you’re about to buy a new car.
Few might be aware that, from April 1, car tax – or Vehicle Excise Duty to give it its proper name – is in for a radical overhaul. And it’s not very good news, either, with seven in 10 people expected to pay more than they do now.
But don’t panic quite yet – these changes only apply to new cars bought on or after April 1, 2017. If you’re planning to buy a new car very soon then you’ll need to know what’s happening. The revised VED bands will affect practically every car.
For years now the bands have been heavily weighted on carbon emissions, with manufacturers continually striving to get CO2 grams per kilometre down as low as possible – with those below 100g/km costing nothing to tax and cars in the low 100s costing very little.
However, from April 1 only electric cars like the Nissan LEAF and hydrogen-powered cars like the Toyota Mirai will be exempt – all others will pay a flat £140 a year.
So, buy a car emitting 99g/km on March 31 and it will be free of road tax for life (barring future changes). Buy it on or after April 1, however, and it will cost £120 in the first year and £140 a year thereafter. Cars emitting 131g/km will be taxed £200 instead of £130 and after that it gets a bit scary.
Motors putting out 151g/km will be charged £500 instead of £180, while those emitting 171g/km will be charged £800 instead of £295 and those emitting 191g/km will be charged £1,200 instead of £490.
Those emitting more than 255g/km will be clobbered even more than they are now – from £1,100 to £2,000. Those are all first year figures only, remember.
The current structure based on CO2 bands was introduced in 2001. Cars built before that year have their tax based on engine size. The changes come as a reaction to ever-falling CO2 emissions in modern cars.
An increasingly large number of ordinary cars now fall into the zero or lower-rated VED bands, meaning they pay no tax at all. And the Government has finally realised that it’s missing out on lots of tax revenue.
Another little fly in the ointment is for those buying luxury vehicles that cost more than £40,000, which will cost £450 a year in years 2-6 thanks to a £310 surcharge.
Even if they are electric – a Tesla Model S, for example – owners will still have to stump up the £310. Likewise a luxury diesel, such as an Audi with an Ultra diesel engine emitting 99g/km, would be hammered for £450 when they are free of charge at the moment.
And owners of everyday cars considered ‘green’ before will also get hit hard. The Ford Fiesta EcoBoost 100ps, for example, will cost £540 more over four years. Let’s not forget that’s the UK’s biggest selling car, so that’s some serious new income for the taxman.
However, some owners of gas-guzzlers will actually be better off over time. Although they will be clobbered in year one, after that they pay the flat £140 like everybody else.
Here’s a summary of the new rules:
Zero emission cars pay no tax.
Anything over zero – a ‘standard’ car – pays £140 a year from year two onwards.
Owners of any car that costs more than £40,000 - regardless of its emissions - will pay £310 extra every year – so anything other than zero emissions will be £450 from year two.
On top of that in the first year cars are rated on their carbon-dioxide emissions and will pay a one-off VED of between nothing and £2,000. For example hybrids will pay £10 in year one and then £140 a year thereafter.
However, buyers of some high-performance cars that are less clean will be better off as the yearly flat rate of £140 is less than they currently pay.