The way Vehicle Excise Duty (car tax) is calculated is changing. These changes are going to have a significant impact on all new car buyers and care will need to be taken to avoid potentially hefty tax charges. Below are details of the new rules affecting all new cars from 1st April 2017.
New Vehicle Excise Duties
From 1st April 2017
New Vehicle Excise Duties (VED) rules come into force for new cars registered after 1st April 2017. These tax changes mean that all new car buyers will face a significant increase in their car tax in the first year of registration, depending on CO2 emissions. Whilst currently low emission cars are exempt, the new VED system will only be free for vehicles with no emissions i.e electric and hydrogen cars.
There is also a new five-year supplement to pay for cars costing more than £40,000 which will be £310 per annum. Buyers of smaller, more economical cars will face the largest increases in duty as they have previously benefited from the old regime favouring low emission cars.
Why change?
Manufacturers have slashed CO2 emissions resulting in less tax revenues for the Exchequer. It is estimated that a quarter of new cars pay no road tax as CO2 emissions are below 100 g/km.
The new changes in detail
Cars registered after 1st April 2017 will pay a one off tax charge for the first year under a revised CO2 based band system. From the second year onwards, the CO2 scale becomes irrelevant as there will be two flat rates. A zero rate for zero emission vehicles and a flat rate of £140 for other cars.
Cars costing over £40,000 will pay the £140 from year two plus £310 for the first 5 years, meaning a total of £450 pa. After five years they revert back to the £140 flat rate. A £40,000 plus car with zero emissions will pay the £310 expensive car supplement.
As part of the changes, alternative fuel vehicles eg hybrids, bi-ethanol and liquid petroleum gas will benefit from £10 lower rates for the first 5 years.
The VED tax bands from April 2017 are as follows:
| Emissions (g/km of CO2) | First year rate | Standard rate |
| 0 | £0 | £0 |
| 1-50 | £10 | £140 |
| 51-75 | £25 | £140 |
| 76-90 | £100 | £140 |
| 91-100 | £120 | £140 |
| 101-110 | £140 | £140 |
| 111-130 | £160 | £140 |
| 131-150 | £200 | £140 |
| 151-170 | £500 | £140 |
| 171-190 | £800 | £140 |
| 191-225 | £1,200 | £140 |
| 226-225 | £1,700 | £140 |
| Over 225 | £2,000 | £140 |
Cars above £40,000 pay £310 annual supplement for five years.
Cars registered before 1st April 2017
Existing VED bands will remain in place so that these cars continue to pay the current VED rates even after the new bands come into force.
Current (pre-April 2017) vehicle VED tax bands:
| VED Band | Emissions (g/km of CO2) | Annual rate | First year rate |
| A | Up to 100 g/km | £0 | £0 |
| B | 101-110 g/km | £20 | £0 |
| C | 111-120 g/km | £30 | £0 |
| D | 121-130 g/km | £110 | £0 |
| E | 131-140 g/km | £130 | £130 |
| F | 141-150 g/km | £145 | £145 |
| G | 151-165 g/km | £185 | £185 |
| H | 166-175 g/km | £210 | £300 |
| I | 176-185 g/km | £230 | £355 |
| J | 186-200 g/km | £270 | £500 |
| K | 201-225 g/km | £295 | £650 |
| L | 226-255 g/km | £500 | £885 |
| M | Over 255 g/km | £515 | £1,120 |
Road tax refunds when you sell your car
Any remaining road tax is refunded to the seller and the buyer has to re-tax the car. The tax refunds should be sent automatically when the DVLA receives notification that the car has been sold. Sellers must inform the DVLA of the change of ownership immediately and fines for not doing so are £1,000.
Conclusion
With the news that only cars with zero emissions costing less than £40,000 will qualify for the new £nil rate tax band, it’s clear that the government is keen to put pressure on manufacturers to provide more vehicles within this bracket. This is another step on the road towards the Transport Ministers goal for all cars and vans to be zero emissions by 2050.
Craig Walker is a senior tax manager at the firm. He advises on all matters tax related, both corporate and personal, including income, capital gains and inheritance. For more details and advice, please contact Craig on cw@hawsons.co.uk or 0114 266 7141.