New VED road tax: 2018 UK car tax changes explained

On 1 April 2017, the Government introduced a new set of vehicle excise duty (VED) bands, affecting all new car buyers. 

The new rates brought about higher first-year fees for all cars, plus replaced subsequent rates with a blanket £140 fee. Only electric and other zero-emissions cars are now tax-exempt, with diesel and petrol cars on average costlier to tax. 

Then, in November 2017, the Government announced further changes to the VED rates, with buyers of new diesel cars from April 2018 facing higher rates if their cars do not meet the current Euro 6 emissions standards in both laboratory and real-world tests. 

Yet more changes are due in February 2020, when the basis for VED and company car Benefit in Kind (BiK) rates switches from current emissions criteria to a new, stricter system. 

Read on for a full guide to the new vehicle tax rate changes... 

Road tax changes from April 2018

In the Autumn Budget, Chancellor Philip Hammond announced that all new diesel cars from 1 April 2018 will face going up a VED band if they fail to meet the latest Euro 6 standards under real-world testing. 

New cars will have to meet the real driving emissions (RDE) step 2 test that forms part of the current EU type approval process. This means new cars can pollute up to 1.5 times the current 80mg/km NOx limit under real-world driving if they are to avoid going up a tax band. 

According to the Treasury"s estimates, less than two million cars will be subject to the VED band jump, though cars like the Ford Fiesta are expected to see a £20 rise in the first-year VED rates. Higher polluting models, like the Porsche Cayenne are expected to see their first year rates go up by £500. 

The changes only apply to new diesel cars, not vans, and do not impact the subsequent £140 yearly fees all cars have to pay after the first year. The table below shows how the new rates will work. Any car failing to meet the Euro 6 standars in real world testing would move up a band, and thus pay anything from £15 to £500 more in first year rates. 

New diesel tax bands from April 2018
CO2 emissions (g/km)Current first year VED ratesFirst year VED rates for diesels bought from April 2018 not meeting real world Euro 6 standards 
0£0N/A
1 - 50£10£25
51 - 75£25£100
76 - 90£100£120
91 - 100£120£140
101 - 110£140£160
111 - 130£160£200
131 - 150£200£500
151 - 170£500£800
171 - 190£800£1,200
191 - 225£1,200£1,700
226 - 255£1,700£2,000
Over 255£2,000TBA
VED road tax and BiK changes 2020 explained

From 6 February 2020, the way road tax (VED) and company car Benefit in Kind (BiK) rates are calculated will change. On that date, the Government plans to switch the way it measures CO2 emissions (on which both tax rates are based) from outgoing NEDC criteria to new, stricter, WLTP tests.

These new rules are likely to result in increased taxes for consumers, as CO2 emissions, when measured under WLTP criteria, are typically higher than when measured against the outgoing NEDC system. 

A recently-launched consultation document on the subject said: "We are proposing that the change-over to WLTP specific CO2 emissions should take place from 6 April 2020. This will align with the use of the new CO2 figures for VED and company car taxation purposes." 

April 2017 tax changes explained

Back in the good old days with the previous VED tax system, a lot of new car buyers were paying a surprisingly small amount of money to tax their car and many small diesel cars were completely tax free. Ex-Chancellor of the Exchequer George Osborne realised this, saw potential for the Government to generate millions of pounds of income, and so set about implementing the new system – increasing the cost of motoring for a lot of motorists.

  • Guide to UK road tax bands

The current rates will ensure that most new cars are subjected to a significant increase in their first-year tax demands, after which a flat rate of £140 will apply each year. Meanwhile if you purchase an “alternatively fuelled” car (for example a hybrid, or something that runs on LPG or bioethanol), you’ll pay £10 less in your first year of tax and then £130p/a thereafter.

And if you’re concerned about your current car, don’t be: as long as it was registered before 1st April 2017, the changes won’t apply.

Fewer cars now exempt from VED tax

Unlike the old system, where low-emission petrol and diesel cars were tax exempt, the current VED system is only be free for vehicles with no tailpipe emissions - that means electric and hydrogen cars only. That"s not all, though, as there"s a new five-year supplement to pay for cars costing more than £40,000, which is priced at £310 per year and starts in the second year of registration.

The Auto Express consumer team found that most new car buyers stand to lose out under the current system. We calculated the tax hike affects smaller, more economical cars the most, with some owners paying up to nine times more than they would have under the old system. 

Owners of higher polluting vehicles will also pay more under the current laws, but face a lower increase proportionally speaking. It"s important to note that the current tax rates only apply to cars registered after 1 April 2017. Cars registered before will continue to pay the old rates. 

For example, owners of a new Peugeot 208 1.2 PureTech used to pay £20 a year, but now pay £140. As our table (below) shows, potential buyers will see bills increase nine-fold over three years. 

Yet while first year fees for a higher polluting car like Honda"s CR-V 2.0i VTEC SE have gone up from £300 to £800 under the current regime, annual tax drops by £70 from the old £210 - making the CR-V a more attractive nearly-new buy after April 2017 than it is was before. Across three years of CR-V ownership, that works out to a total tax rise of just 50 per cent. 

Highest proportionate increase

CO2 emissions

Current First Year RateNew First Year RateThree years" tax current rateThree years" tax new rates% change three year ownership

Peugeot 208 1.2 PureTech (82) Allure

104g/km

£0

£140

 £40

 
£420

 
950%

Ford C-Max 1.5TDCi (120) Zetec

105g/km

£0

£140

£40

£420

 
950%

VW Passat 1.6 TDI S

105g/km

£0

£140

£40

£420

950%

Nissan Qashqai 1.6 dCi  (130) N-Connecta

 115g/km

£0

£160

 £60

 
£440

 
633.3%

Lowest proportionate increase

 

SEAT Alhambra 1.4 TSI (150)

 
150g/km

 
£145

 
£200

 
£435

 

 
£480

 
10.3%

Ford Mondeo 1.5 EcoBoost Titanium

 

134g/km

 

£130

 

£200

 

£390

 

£480

 

23.1%

Jaguar XE 2.0i R-Sport (auto)

 

179g/km

 

£355

 

£800

 

£815

 

£1,080

 

35.8%

Toyota Verso 1.6 V-Matic Icon

154g/km

 
£185

 
£500

 
£555

 
£780

 
40.5%

Honda CR-V 2.0 i-VTEC SE 4WD

 
173g/km

 
£300

 
£800

 
£720

 
£1,080

 
50%

• Company car tax rules 2017

Read on for a more detailed explanation of the road tax changes, why they"re taking place, and to see the savings you could be making before the switchover. 

Don"t forget to follow Auto Express on Twitter and like our Facebook page for the latest car news, features and advice.

The truth behind the 2017 road tax band changes

The old road tax regime cost the Exchequer a packet as carmakers took advantage of the old VED rates that favoured low-emissions cars. 

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In fact, it’s reckoned that a quarter of new cars registered in 2016 didn"t pay any road tax at all as they fell into VED Band A for vehicles with CO2 emissions of less than 100g/km.

Before the current regime was introduced, cars had to reach Band D (121-130g/km) before any significant annual road tax was charged. The chancellor  deemed the situation ‘unsustainable’.

Tax Disc
What are the 2017 road tax changes in detail?

Cars registered after 1 April 2017 pay a one-off tax charge for the first year, with rates decided by a CO2-based tax band system.

The adjustments compared to the pre-April 2017 tax bands mean most new car buyers will see their first-year tax charge virtually doubled, while only zero-emissions vehicles will get away with paying nothing at all.

From the second year of ownership onwards, the CO2 scale becomes irrelevant, as two flat rates will then be applied – a £0 (zero) VED rate for zero-emissions vehicles only, and a flat annual rate of £140 for all other cars.

Taxman seeks permission to break speed limit

Although cars costing over £40,000 will also be liable for the £140 VED rate from year two, at that point they will also be forced to pay an additional annual ‘supplement’ of £310 for five years. 

That means expensive £40k+ zero-emissions cars will no longer get away with a free ride, as they’ll have to pay the £310 supplement. Everything else in the £40k+ bracket will pay £450 a year (£310 supplement + £140 flat rate) until that five-year period is over and they revert to the £140 flat rate.

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If your car is alternatively fuelled (cars that are hybrids or run on bioethanol or LPG), then your rules are slightly different. Emissions rules still apply, but £10 is shaved both your first year rate and annual flat rate. So, for example, a Toyota Prius Business Edition emits 70g/km of CO2, so the tax man will charge you £15 for the first year, then £130 for every year after (rather than £25 for the first year and then £140 thereafter like a petrol/diesel car that emits the same amount).

What car tax band is your car in?VED tax bands: April 2017 onwards: table
VED car tax bands for cars first registered from 2017 onwards
Emissions (g/km of CO2)First year petrol/diesel rateStandard petrol/diesel rateFirst year alternative fuel rateStandard alternative fuel rate
0£0£0£0£0
1-50£10£140£0£130
51-75£25£15
76-90£100£90
91-100£120£110
101-110£140£130
111-130£160£150
131-150£200£190
151-170£500£490
171-190£800£790
191-225£1,200£1,190
226-255£1,700£1,690
Over 255£2,000£1,990
Cars above £40,000 pay £310 annual supplement for five years from the second year of registration.
Old (pre-April 2017) vehicle VED tax bands: table 
VED BandCO2 EmissionsAnnual rateFirst year rate
AUp to 100 g/km£0£0
B101-110 g/km£20£0
C111-120 g/km£30£0
D121-130 g/km£110£0
E131-140 g/km£130£130
F141-150 g/km£145£145
G151-165 g/km£185£185
H166-175 g/km£210£300
I176-185 g/km£230£355
J186-200 g/km£270£500
K*201-225 g/km£295£650
L226-255 g/km£500£885
MOver 255 g/km£515£1,120
What do 2017 road tax changes mean for cars already registered?

Cars registered before April 2017 will continue to pay the current VED rates even if they change owners. Fortunately for owners, the existing rates for CO2 bands are much more favourable to lower-polluting vehicles. 

The current UK road tax rules explained

While the 2017 VED rate shake-up will affect a lot of motorists, the system for collecting and enforcing road tax is not being changed again.

The 2014 overhaul of the road tax arrangements ended the tax disc"s 93-year reign and has already made the whole system cheaper to run. There is a catch, however, as you"ll find out below.

Tax

The current road tax set-up also makes it tougher for those seeking to avoid paying road tax. Rather than the visual check that the tax disc made possible, the authorities now rely on number-plate recognition cameras to determine that a vehicle has been taxed. 

Switch to direct debit - don’t risk being caught with no road tax

Although it’s no longer a requirement to display a tax disc in your windscreen, this doesn’t mean you don’t have to pay car. The DVLA will send you a reminder when your road tax is up for renewal in the time-honoured fashion, and you can continue to pay your road tax online, over the phone or at the Post Office. 

The road tax price bands remain the same, as do the existing options of paying for 12 or 6 months tax upfront but there’s also the option of paying your car tax monthly. This new monthly option arrives in tandem with the facility to pay your road tax by Direct Debit.

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Drivers paying in monthly installments from their bank accounts will be subject to a 5% surcharge on top of the road tax price itself. That’s less than the 10% that’s added when you pay for six months tax, an option currently used by 23% of motorists. Only the one-off annual payment comes with no extra charges.

The key advantage of paying your car tax by Direct Debit is that the DVLA will continue taking the payments until you tell them to stop. It means that although you’ll no longer have an expiry date on the disc stuck to your windscreen, you’ll no longer need to remember it anyway. Your tax will be renewed automatically, and you can get on with more exciting stuff - like remembering your MOT.

What happens to your road tax when you sell your car?

Under the new car tax system, any remaining road tax will not transfer to the new owner with the vehicle. Instead, the seller can get a road tax refund on any tax remaining on the vehicle, while the buyer has to pay to re-tax the car. 

The tax refund on a sold car will be sent automatically when the DVLA receives notification that the car has been sold, scrapped, exported or taken off the road with a Statutory Off Road Notification (SORN).

Sellers are expected to inform the DVLA of any change of ownership straight away or face a £1,000 fine. If they don’t, they could also still be liable for speeding or parking fines incurred by the new owner.

Information on whether or not a car is taxed is available online via the Government website. All you need is the make and model of the car plus the registration number.

Is there a catch to the Vehicle Excise Duty regime?

So far, so good for the new road tax system but as often seems to be the case, there is a catch.

The problem that"s getting motorists riled centres around the refund you get on outstanding road tax when you sell your car. When ownership of a vehicle is transferred the previous owner gets a refund on any outstanding road tax but that refund is calculated from the beginning of the next month. The new owner, on the other hand, has to tax the car anew and their bill is calculated from the beginning of the current month.

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What this means is that the Government effectively collects two lots of tax on the car for the month where ownership is transferred, one from the new owner who pays for that month and one from the previous owner who doesn’t get the tax for that month included in their refund. It"s sneaky stuff and should give a useful boost to the exchequer, but at the expense of motorists.

Click through to page 2 to find which cars will cost more to tax after April 1st and which will cost less...

Nguồn: www.autoexpress.co.uk