Keeping up with government reforms can be tricky. We’re here to keep you one step ahead of upcoming changes, so there’ll be no nasty surprises on your tax bill.
Road tax – or, by its proper name, Vehicle Excise Duty (VED) – is set for some big changes next year. The reforms were announced in the 2015 budget, and although they'll only affect cars newly registered with the DVLA from 1 April 2017, all drivers should understand them.
What does ‘newly registered’ mean?
All cars need to be registered with the DVLA before they go on the road. Used cars have already been registered (and have the VC5 papers to prove it), but vehicles that have been built, imported, rebuilt or bought brand new haven’t. So if you buy a new car on 2nd April 2017 these changes will apply; if you buy second hand they won’t.
Why is the system changing?
In 2015, former Chancellor George Osborne highlighted that without an overhaul of the current system, around 75% of new cars would be eligible for free road tax by 2017. According to Osborne, a steady revenue from vehicle tax is needed to fund essential road maintenance throughout the UK.
Three new bands will be introduced “to make the tax fairer, simpler and sustainable”, and to encourage people to choose the cleanest cars. They are:
- zero (cars with no emissions);
- standard (most vehicles); and
- premium (cars costing £40k or more).
First year and fixed rates
Emissions will only be taken into consideration for the first year's tax bill. After that, a standard rate applies. This aims to make road tax fairer for drivers with older cars, which can be very expensive to tax under current regulations. Despite this, the cost of road tax will still depend on which band your vehicle falls under. After the first year, payment will be as follows:
Zero
- Cars worth less than £40k are VED free
- Cars worth more than £40k will be subject to a £310 surcharge for the first five years
Standard
- £140 per year
Premium
- £140 per year
- £310 surcharge for the first five years
Who will be most affected?
Drivers of small fuel-efficient and hybrid cars will feel the biggest impact. VED on some models will cost more than ten times as much as it does now. For example, the Peugeot 208 1.2 PureTech (82) Allure currently costs £40 in tax for the first three years. Under the new regulations, that three year total will jump to £420. That’s a 950% increase on 2016 rates. Similarly affected cars include:
- the Ford C-Max 1.5TDCi (120) Zetec;
- the Lexus IS 300h Hybrid auto Luxury; and
- the VW Passat 1.6 TDI S.
The bright side
Sports cars and SUVs (large cars with four-wheel-drive) that cost less than £40k, and have emissions of 226g/km and above, will actually work out cheaper under the new regime. Buyers could save £600 over the first five years and a huge £2,500 over ten years under the flat-rate system. If you're planning to buy a car like this, it's worth waiting until next April.
Date for your diary
These changes only apply to cars first registered after 1st April 2017. If you register your new car by 31st March 2017, the updated road tax rates won't apply. The reforms also only cover privately owned cars. Company vehicles are governed under different regulations, which are also set to change.
