/ Money, Motoring

How will the changes to car tax affect you?

Car monopoly

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.

April Fools?

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?)

Comments

All cars should pay the same amount of tax as they all use the same roads!

The clue is in the words VED – no mention of road, only vehicle.

…and bigger cars take up more road space

…and heavier vehicles cause more wear and tear to the roads

C Read says:
11 April 2016

I see the words Road tax slipped in, motoring journalists just can’t help themselves can they? At least the main points in the article say VED or car tax.

It’s unlikely that common usage of incorrect terms will change in a hurry so the best option is just to feel smug.

Hi all, we’ve rounded up some of your views on the new car tax rules here: https://conversation.which.co.uk/motoring/new-car-tax-vehicle-excise-duty-debate/

Dorothee says:
10 May 2016

What another old lot of Government bunkum … Why make anything easy when you can spend thousands of tax payers money on over complicating a situation that should be fairly straightfoward!!

Can anyone suggest why a car costing £40 000 plus is penalised with £310 a tear extra tax for 5 years? What has that got to do with pollution or anything else?

The manufacture and eventual disposal of an expensive car will cost more than for a more basic model, so there are definite environmental implications. Anyone paying £40k for a car will not be short of money and can well afford to contribute more to the upkeep of our roads, etc.

Since when did VED pay for the upkeep of our roads? And why should someone who chooses to buy a more expensive car have to subsidise other road users? They’ve already paid more vat – which far outweighs VED.

An expensive car is often better built, better components,will last longer and may well be better looked after, thus using no more resources, or even less than a cheapo car.

Not convinced by these arguments. If it were another party in power I might buy the wealth tax envy argument……………., But I’m keeping an open mind.

You invited us to suggest an explanation for the additional tax and that was my suggestion. If you can prove that the manufacture, use and eventual disposal of an expensive car has lower than for a cheaper one I will be interested in seeing the evidence. I fully support this measure.

Thanks for your comments. As I said I’m keeping an open mind. I don’t know whether we can “prove” either way; I put a question forward.

What I’m personally not comfortable with is the “mansion tax” approach where because someone chooses to spend their money – money that has already been taxed – in a particular way should be hit with a punitive tax simply for spending it. If it could be shown that all cars costing £40 000 or more were environmentally costly and all cars of £39 999 and less were not I might be convinced. Any evidence out there?

£1.5 k spread over 5 years is not a lot – hardly a punitive tax. I presume there was an explanation of the forthcoming changes in duty and that could answer our questions. Having polished my crystal ball, I foresee an increased number of cars marketed at just below £40k.

Malcolm – The rationale for the £310 annual supplement for cars costing £40k or above is: “To ensure those who can afford the most expensive cars make a fair contribution, a supplement of £310 will be applied to the SR of cars with a list price (not including VED) over £40,000, for the first 5 years in which a SR is paid.”

https://www.gov.uk/government/publications/vehicle-excise-duty/vehicle-excise-duty

By “punitive” I meant it punishes people who choose to spend more on a car. I think £1500 is quite a lot. 18 months gas and electricity for example.

That’s peanuts compared with the depreciation in value when you drive a £40k car out of the showroom.

wavechange, thanks for digging this document out. It makes interesting reading, if lacking logic.

VED was CO2 based, but as new car emissions have reduced the VED take has also come down, hence the need to restore income. So low CO2 vehicles will pay £140, just like everyone else. Except – if you choose to buy a high emissions vehicle you are only “penalised” in the first year – from an extra £360 for a 170g CO2/km to £1860 if it chucks out more than 255g CO2/km. All these cars then only contribute £140 for the rest of their lives (subject to normal changes) despite the fact they are creating at least 2 or 3 times the pollution.

If you choose to spend £40 000 or more however, out of taxed income, you are being asked to subsidise for 5 years the rest of the motorists, because the tax they pay is insufficient to make up the total required (“ensure those who can afford the most expensive cars make a fair contribution”). What do they mean by “fair”. But it matters not that many of these cars will be low on emissions, for all their lives.

So the logic is, don’t worry about emissions – if someone is prepared to pay a bit more in the first year in VED they can pollute as much as they want for ever. But if someone has the sense to buy a low polluting car, but has the means to buy a nicer vehicle, then penalise them for 5 years. Logic? What logic. Or does it appease the envy brigade|?

We can lose sense of value when we just look at prices. For example, you buy a house and if you haggle, might get £5k or £10k off – maybe by bargaining or pointing out items in the survey. But many think well, I’m spending £400 000 so it’s not worth bothering about (and believe me I’ve heard this a few times). Well £5000 is still £5000 in whatever context; most would love to be given it.

Depreciation is only relevant if you choose to sell your car. The £1500 penalty (additional tax to subsidise others) is still worth the same whether you buy a £40k car or a £20k car. Seems a symptom of the consumer society that we can lose sight of true values.

The official information backs up my guess. I would like to see more tax payable on luxury goods – and less on essentials, which would benefit most people. We used to have higher rate VAT on luxury goods and at one time there was Purchase Tax.

You pay more tax already on “luxury” goods as they are more expensive than “essential” goods. It’s vat. So you buy a £40k car and pay £8k vat, or a £12k car and pay £2.4k. You are also (I hope) paying out of income that has already been taxed. “Essential” goods like food, housing, water, are not taxed and energy is taxed at the minimum allowable (EU) rate of 5%.

It is, to some, popular to penalise the wealthy (although I don’t regard a £40k car as restricted to them), and people often buy “luxury” goods, whatever they might be, as gifts for a loved one.

If you can own your own home then you must be wealthy (compared to many) and therefore perhaps. as a luxury, it should be heavily taxed as a “fair contribution” toward the provision of social housing. Maybe put vat on all house purchases? No – before anyone leaps to the button – I don’t think so. But we must be careful how we treat others, and resist the politics of envy.

We could get into a discussion of fairness in society – which I look at from a non-political perspective – but that would be off-topic. At least we now know the rationale for the annual supplement on cars costing £40k or more, and I support it.

I have always believed that taxing a heavy gas-guzzling car, at a higher rate, is wrong. Heavy cars give more protection in the event of an accident than a small ‘green’ car. You cannot change the law of physics on that. Taxing the big heavy car is to impose a tax on personal safety. The leaders of our society encourage us all to use small ‘green’ cars, but they themselves never drive such cars. They do not lead by example and for obvious reasons.

So when a ‘heavy car’ goes out of control in a town centre and ploughs into a bus stop or hits people on a Zebra crossing that’s alright because the driver and passengers are better protected? I think you need to reconsider your policy, Kocour. There is no need for ‘heavy cars’ on our small roads.

And don’t forget the cyclists and motorcyclists.

It seems to be buses and dust carts that are villains as well. “Heavy” cars have appropriate brakes. I suspect the argument is that when some idiot crashes into you, you have better protection in a more substantial vehicle.

If we turned the outskirts of towns and cities into car parks and only allowed in hybrid/electric buses, low emission city cars (on hire in the car park), or pedal / electric bikes we would reduce congestion, dramatically reduce emissions (forget about tinkering with NOx from Euro 6 engines – huge amounts come from their older predecessors) and we might begin to improve the health of city dweller and visitors. But I realise that the final solution will be over-ridden by our individual wish to do as we please.

The horrific Glasgow incident involving a dustcart was a tragedy brought about by a lying driver and a delinquent employer. Nothing can protect against that. I have read and heard a lot in local papers and news bulletins about collisions between buses and people in town centres; sometimes they were caused by carelessness by the pedestrian, sometimes as a reaction to behaviour by other drivers, and occasionally by a driving error by the bus driver. Such incidents are often fatal because of the sheer mass of the vehicle causing the impact, notwithstanding the quite low speeds involved.

In my opinion, given that cars of all sizes have seat belts and airbags to protect their passengers, trying to justify the use of big cars on safety grounds is wrong. Brakes, however powerful, have to be activated by human intervention so there is a built-in fallibility.

I don’t know how many major city centres there are in the UK, possibly 50-60, but many of them have already introduced traffic reduction schemes with park-&-ride facilities and subsidised public transport. I agree with Malcolm on the need to progress with more of these schemes and be much more ambitious with alternative motive power to cut emissions. However, there are thousands of district centres and suburban locations where schemes of this nature will not work or be affordable and where the answer to people’s transport desires should not be ever bigger cars and rising levels of pollution. I believe an economic curb on vehicle capacity and engine characteristics is essential. Behaviour also needs to be checked; some people would drive their children into the classroom if the doors were wide enough. I would suggest drop-off points about 400 metres away from the school gates; this would provide exercise, socialisation between children on their way to school, and punctuality discipline, as well as road safety and less pollution.

Wavechange rightly reminds us of the risk to pedal cyclists and motorcyclists in the event of impact with vehicles. In my younger days I was twice knocked off my bike by cars driven badly. In town and city centre we have unwittingly allowed dangerous cycling to become a hazard for pedestrians and other road users but at least no emissions are involved. I cannot argue with Malcom’s finishing thought: “the final solution will be over-ridden by our individual wish to do as we please” and that is the crux of the problem.

We nevertheless have a duty and responsibilty to consider our children and grandchildren in particular. My generation has created the pollution that will have a greater effect on them than ourselves and its up to us to make the necessary changes before the situation becomes irreversible. From all accounts I believe we have almost reached that point.

I agree we must tackle pollution. I have firmly come to the view that whilst reducing the pollution from individual vehicles can only help, it cannot be the real solution – as more vehicles are on the roads we’ll just increase pollution, particularly from slower and stationary traffic. Somehow we must restrict vehicles or we’ll never help people’s lungs.

It is not only our generation that has created pollution, however. When I lived in an industrial city we had “smog” – filthy air polluted by emissions from industry and from the coal fires prevalent at the time. A clean air act did a lot to improve that – although i’m not sure what fumes smokeless fuels gave off. We tackled that problem in a radical way – banning coal fires and requiring industry to install scrubbers and reduce nasty emissions. We will have to impose solutions on vehicle usage if we don’t do it voluntarily (which we wont). I doubt VED will have any effect whatsoever.

Dave3 says:
14 May 2016

Re. the earlier discussions about the environment, I feel that the Government could and should make a positive contribution to better air quality by removing the ability of most VAT-registered businesses to reclaim the VAT on the purchase of commercial vehicles (and a smaller number on the purchase of cars) and on fuel purchases, and should also remove the ability of businesses to offset the purchase of vehicles and fuel against tax liabilities.
Controversial, I know, but when you’re next being overtaken by a heavily-loaded arctic, spewing out particulates, do you think the owners or drivers are particularly worried about fuel consumption, when they can do such offsets? If they were hit on the bottom line, then they may perhaps be more interested in better use of fuel and in pushing manufacturers to produce even more efficient vehicles.
Yes, the cost of all goods and many services would probably rise, but how can you put a value on better health? I assume that the NHS is already spending a lot of money on the effects of vehicle pollution.
The basic argument here is whether or not people (including all politicians, who have the power to make the rules) give a toss about the future of their children and grandchildren. I don’t have any kids, but still believe that we should try and minimise our effect on the environment. Unfortunately, recent events (e.g. VW) demonstrate that vehicles manufacturers have been able to exert far too much power on political decisions, for the sake of their bottom line. I’ll shut up now, although I feel there’s a book somewhere….

Put long distance freight on rail and distribute it by road at night in towns. Ah – noise complaints from the residents?

TCS says:
14 May 2016

Got a new car costing over £40k on order already, so escape the £310 charge from 2017-get in!! So lucky!

Ron says:
14 May 2016

What bloody idiot thought this scheme up, we might as well go back to the old style of road tax, on engine size it was simple and everyone understood it

I agree, Ron. They should forget all the peripheral stuff (including engine size) and just add a few pence to the current fuel tax.

Big engine + low fuel economy + high miles covered = £££££
Big engine + low fuel economy + low miles covered = ££
Small engine + High fuel economy + high miles covered = £££
Small engine + High fuel economy + low miles covered = £

And all points in between.
Buyer’s choice.

Janet says:
6 June 2016

I have a hybrid car. Does the change only affect brand new cars made after April 2017? How does this change affect hybrid cars made before April 2017? Or does the age of the car not matter?

Any money brought in by road tax and emission related charges should go towards a plan to reduce co2 globally.
Worrying about London or England alone by installing “average speed check” zones or ULEZ and LEZ, CC, (whatever next) as if there are some sort of imaginary skyward borders that pollution and ozone damage somehow adheres to must be some sort of sick joke that most people are unbelievably actually falling for!
We are minuscule in our carbon footprint compared to the rest of the developing world but that notion is bad for business so our politicians will just play dumb and ignore the blindingly obvious.

Rich Mckenzie says:
8 November 2016

Hello, can any comment on how this will effect commercial vehicles purchased after april 2017??

Colin Halton says:
19 March 2017

How about a standard charge stepped in relation to the physical size of the vehicle plus a premium added according to the amount of pollution produced by the vehicle?

The solution is in my post below Colin. Forget the size of vehicle (engine and/or physical size) and pollution. These are totally misleading confusions when it comes to “Road Tax”. Someone’s personal choice of vehicle will be affected by the fuel economy and miles covered, and thus the amounts of fuel they will need to buy. Pollution is important, especially that caused by diesel, but this is an issue that should be properly reviewed and considered separately from the vehicle tax.

Corky says:
24 March 2017

Road Tax is for using the roads irrespective of other conditions Co2 is a smoke screen, except Cyclist who get it free and most do not bother with the high way code such as traffic lights.

Wendy Bentall says:
28 March 2017

I own a Bajaj auto rickshaw 4 stroke engine. It is classified as a Robin Reliant (I know) and I have to pay £82 per year road tax even though it is not allowed on the motorways . There are not enough of us owners to club together to complain. Perhaps Which could point this out to the powers that be.

John Sykes says:
29 March 2017

The bottom line is that VED (Car Tax) should NOT be based on emissions. That has clearly always been a false premise, intended to demonstrate government’s attempts to achieve Clean Air targets. Emissions issues, currently majoring on beating down diesel, should be dealt with as an entirely separate issue.

The new system, charging sometimes exorbitant first-year charges on purchase, particularly on vehicles costing in excess of £40,000 but then followed by confusingly odd annual rates thereafter, is clearly unnecessarily complex

The simplest, most effective, and most equitable solution would be to add a few pence to the existing fuel tax, which could be tweaked to ensure that government revenues are adequately maintained, whilst providing a sufficiently granular tax based on drivers’ vehicle fuel economy, driving style and mileage covered. This would be very simple to implement and operate, with absolutely no confusion cause for anyone. All vehicles would have to be registered, as now, with a small admin charge for that. A special annual tax would have to be charged on EVs and any other vehicles that do not use fossil fuels. This operating model would also be easy to apply, being simply a continuation of the current VED system

As an example, a Bugatti Veyron, with poor fuel economy, but covering low mileage, might cost the same or less in tax p.a. than a Vauxhall Astra with much better fuel economy, but covering high mileage. Thus, the factors affecting different vehicles are brought to a common denominator, depending on how the various components apply. Until late 2016, I had a Jaguar XJR which managed only 15 mpg around town. However, my annual mileage in that car was only around 2,500 miles p.a. A friend who has a Ford Focus is achieving mid-to-high 30s mpg, but he covers maybe 30,000 miles p.a. mostly on business. Clearly, the additional few pence on fuel tax would be far less expensive for the Jaguar XJR than it would be for the Ford Focus.

George Rowley says:
30 April 2017

Car Insurance:
The government is through its agents doing its level best to tax through indirect taxation as well as direct taxation every motorist in the United Kingdom.
Drivers will pay roughly an extra £2 Billion a year for car insurance after new personal injury rules came into for at the end of March 2017, according to comparethemarket.com. The price comparison site said that the cost of the average policy would increase by £60 a year but the youngest and oldest drivers, who already pay the most, would be hardest hit. The average price for drivers aged 17 to 20 will rise by £115 to £1,650,it added.
The government announced last month that it was changing the formula used to calculate personal injury compensation. Liz Truss, the lord chancellor said that reform was necessary to reflect lower investment returns that victims of serious accidents could hope to earn on lump-sum payouts.
The change which is more than double payouts to those with life changing injuries, has been criticised by insurers who said that 36 million policies would have to rise to “overcompensate” a few thousand claimants.
Simon McCulloch, of the comparethemarket.com urged ministers to delay an increase in insurance premium tax for the under-25s, which will add an average of £30 to their cover from June 2017.
To add insult to injury. This month The Times revealed that personal injury lawyers, who lobbied for the changes, are set to benefit from the reforms despite government claims that their fees would not increase.
Liz Truss, The Lord Chancelor new full well what was going to happen and chose to do nothing to correct the issue. Once again Liz Truss and her ministers and civil servants and conning the Bristish Public once again.

I don’t see how the changes to the way compensation payments are calculated (designed to prduce an appropriate lifetime income for those affected) are any form of “tax”. If we and the insurance industry question this change they would need to show how any award sum formula can provide the desired income. I would not necessarily have faith in the government getting this calculation right. What happens when investment returns change in the future – will the formula reflect those changes?

Nor do I see why all under 25s should be exempt from the increase in premium tax that all the rest of us, including hard-pressed older people, have to pay.

Richb says:
25 May 2017

This poor change to car taxation shows the government does not care about encouraging clean car ownership. It is clear they see the motorist as an easy target for revenue generating taxation policies that are nothing to do with making our society better.