On 1 April 2017, a new way of calculating Vehicle Excise Duty (VED), otherwise known as road tax came into force. But before we explain how you might be affected by the change, it’s important to note that the new rates apply only to cars registered after 1 April 2017. So if your car was registered before this date, there will be no change to the VED (road tax) you have to pay.
Of course, next time you replace your car with a newer model, you’ll want to be armed with the facts. So here they are.
How VED is calculated for cars registered before 1 April 2017
The amount of VED you pay is based on the level of CO2 emissions your car produces.
This table shows the annual VED for vehicles in each emissions band, both for diesel and petrol engines.
This “sliding scale” was introduced back in 2001, with the aim of encouraging drivers to buy cars with eco-friendly engines. And the scheme was very successful. When it was introduced average new car emissions were 173 gCO2/km, and this figure has now fallen to 125 gCO2/km.
The flipside of this scheme is that an increasingly large number of new cars fall into the zero-rated VED band - which means many drivers pay no road tax at all. And as a result, the Government has been losing millions of pounds in tax revenue every year. So policymakers have addressed the issue by implementing the new system, which aims to boost tax income while still encouraging people to buy low-emission cars.
Cars registered after 1 April 2017
For the first year after a new car is registered, VED is calculated using an emissions-based sliding scale. This is similar to the old system, although costs at the upper end of the scale are far higher under the new rules. You can see the new table here.
Under the new system, road tax in year one goes from zero (for cars with zero emissions), right up to £2,000 (for cars with emissions greater than 255 gCO2/km).
After the initial 12 months, the amount of VED you pay will depend on the type of fuel your car uses.
Alternative fuels (hybrid, bi-ethanol and LPG)
Petrol and diesel
In addition to these three “standard” rates, for the next 5 years there is a further duty of £310 per year for vehicles with a list price over £40,000.
Impact of changes to VED
If you buy a new electric car costing less than £40,000, nothing will change - VED will remain zero.
If you buy a small to medium-sized petrol or diesel car, you’ll probably pay a little more each year. For example, a Ford Focus 1.5 EcoBoost (150 PS) produces 127 gCO2/km. Under the old rules, VED was £110 per year. Under the new rules, VED is £160 in year one, then £140 per year.
For drivers of larger, more expensive cars, the new rules will hit a lot harder. For example, if you buy a new 5.0L V8 Supercharged Petrol Range Rover (510 HP) with emissions of 299 gCO2/km, you’ll pay £2,000 in year one, plus £450 in years 2 - 6. So, for a 6-year period from the date of registration, under the new rules you’d pay total VED of £4,250, compared to £2,575 under the old rules.
Time to take a look at your car insurance?
Car insurance can be expensive so remember to shop around for the best deal. Make sure that you check out the amounts of voluntary and compulsory excess that applies to the policy, this is the amount you agree to pay upfront if you make a claim, so make sure these are affordable should the worst happen.
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