The government is set to introduce a huge shake-up of the rules and regulations concerning vehicle excise duty (VED) on April 1, 2017. In this guide we look at some of the key changes and how they affect all motorists, as well as looking at the new tax bands in more detail. There may be significant financial implications both for existing car owners, and those looking at buying new and used cars.
Once trade plates are removed you will need to pay car tax on that vehicle. At present, owners of very low emitting vehicles can actually pay nothing each year thanks to their car's environmental benefits. Those cars bought and registered before April 2017 will continue to use the existing emissions band structure, which means that it makes sense to buy a low-emitting car before that deadline should you wish to realise the maximum benefits.
However, for all cars registered on or after 1st April 2017, a whole new series of bands come into effect, and only cars with zero emissions will pay zero tax in perpetuity. The reason for the change is that as increasing numbers of motorists have switched to more environmentally-friendly, lower-emitting cars, government revenues have fallen massively, leaving a huge deficit in the Treasury budget; an estimated 25% of new cars bought are currently exempt from any VED. Under the new regulations, that will change.
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With the new bandings, zero emission cars will remain exempt from VED for the duration of their lifetime, but all other cars will be charged a flat fee annually. There is also a first year tax rate, which varies from £0 for the zero emitters to £2,000 for cars which emit more than 255 g of carbon dioxide per kilometre. There is then a flat rate for year 2 onwards of £140 for all cars, regardless of emissions.
While this flat rate means that government revenues are assured, this has startling implications for those considering a new car purchase. A car which currently emits 110 g of CO2 per km would currently cost nothing in year one, and £30 per annum thereafter. Under new rules that would be £140 in year one and £140 each year thereafter. Five year costs therefore rise from £120 to £700! However, someone purchasing a car which emits 180 g CO2 per km currently pays £350 in year one and £225 thereafter, with 5 year costs of £1,250; from 2017 this would equate to £800 plus four instalments of £140, or £1,360 over five years. Clearly the financial benefits of buying a low emitting car doesn't work out as well going forward as it does at the present time, and those buying the higher-emitting cars are penalised by a much smaller % change.
A final note is that cars that cost £40,000 or more will also attract a premium of £310 per year on top of the £140 base for the first five years of the car's life.
|Emissions (g/km CO2)||First year||Standard rate|
Of course the changes will almost certainly spark another boost in car sales leading up to the new registration deadline. With the new car market already booming, many motorists will look to secure the purchase of their new vehicle ahead of April, so that they can reap the benefits of the existing VED banding. It certainly provides consumers with additional decisions to make in the coming period.
With insurance premium tax continuing to rise, any money that can be saved under the VED bandings will be of interest to motorists (though of course those interested in cars at a higher banding may actually prefer to wait until after the changes). If sales do fall after the new bands are introduced, the changes could well spell a downturn in the motor trade, after two years of strong growth.
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