The UK government’s decision to scrap vehicle tax discs has cost an estimated £93 million in the year from March 2015. Vehicle Excise Duty (VED) is a considerable earner for the government, with revenues close to 6 billion pounds, but these latest figures will come as a blow, especially given gains made in other areas of the industry.
More information on VED and tax rule changes here
The rationale for replacing the old paper tax discs with an entirely online system for managing road tax was expected to cut administration costs and make savings of some 10 million pounds per annum.
However, in one fell swoop, almost a decade’s worth of savings has been lost! The drop in revenue has come as little surprise to many groups who forecast that evasion rates would increase once there was no longer a need to display a disc on the vehicle.
Figures released during 2015 by the Department for Transport suggested that around 1.5% of vehicles currently used on UK roads did not have any tax associated with them, a considerable increase on the figure of 0.6% published two years earlier.
One possible reason is that there’s been an accompanying change to rules for taxing cars when they change ownership.
Previously any pre-paid tax “rolled over” with the vehicle, but now drivers must take out new VED when they buy a new or used car, and the seller can apply for a refund of any tax paid for beyond the sale date.
Naturally sellers are keen to recoup their money, while some buyers may genuinely be unaware of this new regulation and thus fail to tax the vehicle correctly after purchase.
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New regulations brought in around October 2014 also now allow drivers to offset payments, or make payments across a 12 month period rather than by lump sum; by making this change, revenues in the first half of the 2015 naturally dropped.
However the government expected to make up the deficit later in the year, but this hasn’t appeared to happen to the extent predicted.
Another factor has also come into play: more drivers are switching to vehicles with lower emissions levels.
These cleaner cars attract lower cost tax bands (with some drivers now paying zero VED annually), and so naturally revenues for these cars will fall. There has been a considerable drive to make vehicles more efficient in both emissions and fuel consumption, and incentives have been offered by the government to the motor trade to drive cleaner technologies.
Coupled with a burgeoning market for new and used cars, this naturally means that lower-emitting, lower-tax vehicles are flooding the market.
As private and motor trade insurance policy costs rise, drivers are naturally keen to save money in other areas, and driving lower tax cars is a good way to do this.