Vehicle Excise Duty changes
It is now less than one month until there are major changes to the way Vehicle Excise Duty (VED) is calculated. Under the current VED rules any cars emitting less than 100g/km CO2 are exempt from the charge. These rules were introduced in 2003 when average emissions were far higher than they are now and many popular car models sold in the UK are currently exempt from VED. This move towards cleaner cars has significantly reduced the tax take from VED.
From 1 April 2017, there will be three new bands of VED known as zero emission, standard and premium. The zero emission rate will only apply to cars with 0g/km CO2 and that cost less than £40,000. The standard rate which will apply to most new cars will be £140. There are a range of bands for the first year from zero to £2,000.
From the second year there will be two flat rates that can be charged, a £0 VED rate for zero-emissions vehicles only and a flat annual rate of £140 for all other cars. In addition, the premium rate will apply for five years (from the second until the sixth year of registration) and will add an additional £310 per year to the VED bill for cars costing over £40,000. This is based on the list price of the car and is charged regardless of the car’s emission rating. There are VED exemptions and discounts for people who suffer from various mobility impairments. In addition, alternative fuel vehicles will continue to receive a £10 reduction on vehicle tax rates.
Any cars registered before 1 April 2017 will remain within the current VED system. This provides a small window of opportunity for anyone thinking of buying a new low emission car before the end of this month. The timing of the purchase of a low emission car could represent a significant saving in VED over the life of the car. In the Budget documents it was confirmed that VED for cars registered before 1 April 2017 will increase in line with inflation from 1 April 2017. Most existing car owners will pay no more than £5 extra VED as a result of this increase.