New Vehicle Excise Duty rules come into effect a year from today. Better known as car tax, the new rules will appear to some hybrid car owners as a cringe worthy April Fools’ piece.
In fact, as it’s 1 April, here’s a list of changes to car tax rules. Can you spot the April Fools?
- New owners of eco cars will be charged hundreds more
- New owners of CO2 heavy cars will be charged thousands less
- A Bugatti Veyron and Toyota Prius will be subject to the same car tax rate
- All cars over £40,000 will be charged an extra £310 per year, for five years
- Some electric cars will be subject to car tax
If you’re not familiar with the new rules, you might be surprised to hear that all of the above are true.
But before I get started on explaining the ins and outs of the new car tax rules, please note that the new April 2017 rules will not be backdated. Only new cars bought after April 2017 will be affected (you’ve basically got 12 months to buy a low emission car that’s exempt from car tax).
The flat rate
Currently, Vehicle Excise Duty (VED) is purely based on the amount of harmful CO2 a car emits, meaning that any low emission car (100 g/km or less) is exempt from car tax.
After April 2017, all new cars will have two rates of car tax. In the first year of ownership, the rate is based on the amount of CO2 a car emits. But from the second year of ownership, the standard year rate kicks in – that’s £140 per year, for every car, regardless of how much CO2 they emit.
That means someone who’s bought a Toyota Prius that emits 70g/km of CO2 will pay nothing under today’s rules. But if they had bought it new after April 2017, they would pay £25 in the first year. Then with the £140 payments, they would have paid £585 in road tax by year five and £1,285 by year ten. That’s an awful lot more tax than the zero amount of tax you’d pay on any pre-April 2017 Prius.
But swap that Prius for a Subaru WRX STI, which produces 242g/km of CO2, and things get hazy. Under current rules, you’d end up paying £2,830 by year five and £5,280 after year ten.
If that Subaru had been bought after April 2017, you’d pay a whopping £1,700 in the first year but, thanks to the flat £140 rate, you’d only pay £2,260 over five years and £2,960 over ten. That saves them more than £2,000 by the tenth year.
So yes, future low emission car owners will be paying more than they were, and gas guzzling cars will be paying less than they were.
The £40,000 rule
After the first year rate, all cars that cost £40,000 from new will be subject to an additional £310 charge for five years.
Even some electric cars will be charged. Although electric cars will qualify as zero-emission vehicles and will continue to be exempt under the new rules, you’ll have to pay if the car costs over £40,000.
Electric cars costing over £40,000 will still be subject to the additional payment of £310 for five years. That’ll be a total of £1,550, despite zero CO2 emissions. Sorry, future Tesla owners.
Bugatti vs Prius
This is as close as we get to an April Fools. The first year rate is staggeringly different (£25 for Prius vs £2,000 for the Bugatti) and, unless somebody sells you a brand new Veyron for £39,999 or less, the Veyron will be subject to the extra £310 payment from years two to six.
However, when both cars reach seven years old, they will be charged the same £140 per year for the rest of their lives. So, they will at least end up on the same rate.
So no, this is no April Fools. This is all genuine and the new car tax rules are coming in next year.
Do you agree with these new tax rules? Will it make you buy a low emission car before 31 March, or will you be waiting for the change to happen to buy a CO2-chugging 4×4? (Or a Bugatti Veyron?)