Changes to Vehicle Excise Duty Road Tax – What impact will it have?
There are changes ahead for the way that road tax is to be calculated and I consider it is important for you to be aware of these changes because it could have a BIG impact on you.
The new VED Road tax changes will be implemented on 1st April 2017 but will not affect your existing car – however, if you are planning on buying a new car after April 2017, you could face a substantial additional car tax payment - hence it may be beneficial for you to change your car now rather than wait three to six months to do so.
I have compiled a guide below to show you how the system works at present and how it will work in 2017 to help you avoid any costly surprises!!
How does it work at present?
Cars registered before March 2001 are taxed according to their engine size with engines under 1549cc charged at an annual rate of £140 and those above this figure, £225.
Since March 2001, all new cars have been taxed on their CO2 emissions measured in grammes per kilometre, for example, 100g/km.
The levels of CO2 emissions are divided into 13 bands, ranging from A (up to 100g/km) to M (over 255g/km). Each band attracts a different charge, calculated on a sliding scale.
However, there are two levels of charges: one which is applied for the car’s first year of registration and another level (called the ‘standard charge’) which is applied thereafter.
For cars that emit low levels of CO2, both rates are the same, but for cars from band H upwards (166-175g/km) the first-year rate is much higher, in an effort to alert car buyers to their vehicle’s high CO2 emissions.
The point of the current tax system is to encourage the take up of cleaner, less polluting vehicles. For example, cars rated at under 100g/km CO2 pay no road tax but cars that emit 121-130g/km CO2 pay £130.
So why has the present system got to change?
As car makers have reduced CO2 emissions, an increasing number of small and medium-sized vehicles now fall into Bands A, B and C – or £0, £20 and £30 car tax per annum - which has become unworkable for the government. As a result, the government has devised a new system intended, it says, to make the system more sustainable.
How will the new system work?
All new cars registered after 1 April 2017 will still be subject to 13 rate bands linked to their CO2 emissions in their first year – but the good news is that new taxation bands have been created for cars emitting less than 100g/km CO2.
The lowest tax rate kicks in at 1g/km CO2, for a charge of £10. This rises I steps to £120 for a car emitting 100g/km CO2. Compare that to the present system where cars emitting up to 100g/km CO2 pay nothing and that’s where the increase shows.
- So currently, a Celerio SZ2 at 99 g/km would attract zero road tax in its first year and zero road tax in the second year upwards, it will, from April 2017 attract a charge of £120 in the first year and £140 per year every year after that!!
- The New Suzuki SX4 S-Cross 1.4 Boosterjet with a C02 of 113 g/km presently costs £NIL for the first year and only £30 per year for the following years – from April 2017, the road tax in the first year will cost £160 followed by £140 per year for the remaining years!
- The extremely popular Suzuki Vitara 1.6 Petrol has a CO2 of 123 g/km and in its first year will change from £NIL to £160 and for the following years will increase from £110 per annum to £140 per annum.
The other big difference between current and new systems is that under the new one, in the second year and beyond, these CO2-related bands are replaced by a standard flat-rate annual charge of £140, regardless of a car’s emissions. That said, cars costing over £40,000 attract an additional £310 annual supplement for five years.
Will my current car be taxed under the new system?
No – that’s the good news and that’s why it may be beneficial to buy yourself a new car before the 1st April 2017 so that you can continue to be taxed under the present system.
Just recap, how the old and new rates compare?
Taking an average family car, such as a
- Suzuki Swift SZ-L - under the current system it attracts an annual tax charge of £30. Its equivalent emitting the same level of CO2 (116g/km) but registered after 1 April 2017, will pay £160 in the first year compared to £Zero currently and £140 a year after that.
What’s the problem?
Inevitably, the change to the new system brings good and bad news.
The good news:
- If you buy a new car between now and the end of March 2017, you’ll pay less road tax than if you delay your decision and buy after the system changes in April.
- If you buy a car emitting less than 100g/km CO2 you’ll be even better off since such cars attract no tax under the present system.
- The new second-year flat-rate system is simpler than the current emissions-based one.
The bad news:
- Cars that today attract no road tax, will do so under the new system and regardless of which band they fall into, £140 every year from their second year.
- The new system may discourage people from buying low-emitting cars. The AA reports that 59% of its members say there will be no incentive to buy low CO2 emissions cars under the new system.
- Under the new system only expensive pure electric and hydrogen cars will pay no road tax.
- There will be a huge new car demand spike before April 1 2017 that may not benefit consumers.
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