On 1st April 2017, the new Vehicle Excise Duty (VED) system announced last summer came into effect. The initial reason given for the overhaul was that it would be fairer, with those forking out for more expensive, environmentally cleaner vehicles having less tax to pay than those who opted for more polluting models, whilst also making up for the deficit in the Treasury caused by increasingly green cars incurring less tax under the old rules. The reality has been that most people remain unaware of exactly what the changes entail and what, if anything, they need to be aware of.
What is VED?
Vehicle Excise Duty is a form of tax based largely on your car’s level of CO2 emissions, where the higher they are, the more you pay. Thus, its aim is to essentially serve as an incentive for people to choose more eco-friendly vehicles, reducing the negative impact on the environment.
What are the changes?
The main change to be aware of is that the tax bracket you fall into will now be determined partly by the value of your car, not just its emissions. Though there will still be 13 different CO2 bands, it’s only affordable models of zero tailpipe emission electric or hydrogen powered cars that will pay nothing.
Under the new rules, VED will now operate at a flat rate of £140 for diesel and petrol fuelled vehicles (or £130 for hybrids) that cost less than £40,000. All cars priced at more than £40,000 will also qualify for an additional annual charge of £310 for five years regardless of their emissions.
It’s important to note that it’s the final list price that counts after extras have been factored in. This means that if you choose what is initially a cheaper model but bolster the price to more than £40,000 with added options, you will still qualify for the premium charge. You will also qualify even if you verbally negotiate a lower price with the dealer, as it’s the actual listed price that’s taken into account.
A further breakdown of the various changes, as well as a table of the new tax bands can be found at Vantage Leasing.
Who will be most affected?
One of the most criticised aspects of the change is the rise in tax costs that hybrid drivers will face, given the government’s previous push towards these cleaner models. The unavoidable £310 charge for more expensive cars also means that going electric no longer guarantees being tax free as it once did.
Though high polluting cars will see an increase as well, it’s actually smaller, more economical vehicles that will typically see the largest proportional hike based on previous rates.
Is anyone exempt?
The only vehicles unaffected by the new system are those that were already on the road and registered before 1st April 2017; they will continue to be taxed based on the old regulations, which may well lead to interesting shifts in both the new and second-hand car markets moving forward as people readjust.
Information sourced from Vantage Leasing