It's now 2017, which means the new rules for VED (Vehicle Excise Duty) or road tax are set to come into effect very soon. Below explains how the current tax system will be changing.
Here are the facts:
- The chancellor announced road tax changes in the Summer 2015 Budget
- The changes effect cars registered on or after April 1st 2017.
- First year rate of road tax will be set according to CO2 emissions.
- For the second year of road tax, a standard flat rate of £140 per annum applies (except cars with zero emission CO2 – which will have a £0 rate of road tax)
- Cars with a list price exceeding £40,000 will attract a supplement of £310.
- There will be no change to the road tax structure for cars registered prior to April 1st 2017.
- There is no road tax change on Commercial Vehicles.
The amount of vehicle tax you pay will still be based partly on your car's CO2 emissions as previous but will now also take into account the cost price of the vehicle.
As the current tax system for new cars will be divided into 13 different CO2 bands to determine how much tax you pay in the first year of ownership, but only zero emission vehicles such as electric cars will qualify for the lowest of these and therefore be tax-free.
From the second year onwards, zero-emissions vehicles that cost less than £40,000 remain tax-free; petrol, diesel and hybrid cars that cost less than £40,000 are charged at a flat rate of £140 a year; and cars that cost more than £40,000 attract an additional 'Premium' fee of £310 for years 2-5 of ownership, regardless of their emissions.
This means that electric cars which cost more than £40,000 – and are currently tax free – will no longer be the tax-busting option that they are currently.
Bare in mind, too, that it's the final list price of your car which determines that £40,000 threshold – if you buy a cheaper model, but add options taking it over that price point then you'll still have to pay the Premium fee. In short, an option for a few hundred pounds could end up costing you more than £1500 over five years in extra VED (Road Tax) costs.
Even if you negotiate a discount with the dealer that drops the price of the car back under £40,000, you'll have to pay the fee, because the listed price will still be over £40,000. The list price is the price of the car before the 'on-the-road' charges are added, such as a delivery charge, new vehicle registration fee, number plates and fuel.
On the right, you'll find a full table detailing how much you'll have to pay in the first year, and in the years thereafter.