The rules around Vehicle Excise Duty (VED) are changing from 1 April 2017. Any new car registered after this date will need to follow the new tax rates.
It will mean that some cars will cost slightly more in road tax than they did before and only cheaper electric cars will be tax free. Thinking about buying a new car this year? Find out whether you should do so before the new tax rates come in.
Why are things changing?
If you registered your car after March 2001, your car will follow the tax rates set in 2015. The rates vary based on the amount of carbon dioxide (CO2) your car emits. There are different tariffs for alternative fuel cars such as hybrids or cars that use biofuels.
However, the current system doesn't reflect the improvements made by car companies to cut vehicle CO2 emissions. The lowest band was originally for electric, hybrid and other low emission cars but more conventional cars fell into this category as engineers improved technology – meaning certain drivers didn't pay any tax.
In the Summer Budget 2015, former Chancellor of the Exchequer George Osborne announced changes to VED. The current tax bands will stay in place until 31 March 2017 – so you only have a few months to get to grips with the new rates.
Under the current rules, cars that emit less than 100g/km do not pay any tax. With the new system, your car will have to produce zero emissions to avoid tax – so you won't pay anything if you have an electric car or one powered by hydrogen.
From 1 April, you will pay a first year rate based on the amount of CO2 your car emits – there are 13 categories that determine these. These range from zero emissions to over 255g/km, and the first year cost varies from £10 to £2,000.
After the first year, a standard rate of £140 will apply to all cars regardless of CO2 emissions. If your new car costs over £40,000, you will then have to pay a supplement of £310 per year for five years – so from years two to six of the car's life. This rule applies no matter if your car produces zero emissions.
Will this affect me?
The changes to the VED rates will affect anyone buying a new car from April. If you buy a car emitting 99g/km before 1 April you won't have to pay any road tax but if you buy it afterwards, it will cost £120 in the first year and £140 a year from that point onwards.
Under the current system, tax kicks in at 131g/km whereas this will drop to 1g/km from April onwards – so it might be cheaper to buy a car earlier. Before you make any decisions, sit down and calculate whether you'd be better off buying a car before April, or wait until afterwards to take advantage of the new system.
There are some people that could benefit from the new system. For example, if you're buying a car with higher emissions that you plan to own for a while, you will pay a high tax in the first year but a much lower tax after this, so you should break even eventually.
Buying a used car? Make sure to check for any outstanding finance before you buy a car.