A simples guide

Car tax changes coming in 2017

There’s a huge change coming to Vehicle Excise Duty (VED, but better known as road tax or car tax). Previously the amount you paid was calculated according to CO2 emissions. This was to encourage people to buy lower-polluting cars such as electric and hybrid.

Since then, however, developments in engine design have meant that around 25 per cent of normal cars now emit such low levels of CO2 that they pay little or no tax. This has led to a sharp drop in income for the Treasury, which says the current system is unsustainable. 

What are the main changes?

For the first time ever, road tax will not only be calculated according to CO2 emissions. For new cars registered on or after April 1, your car tax will also depend on how much you paid for it on the forecourt (second-hand cars and those registered before April 1 will continue to pay car tax under the old system). In fact, the amount you pay for your new wheels will affect how much car tax you pay over the next five years.

Will I be worse off buying a brand new car in April?

Not necessarily. It’s a complicated system but well worth understanding before you go car shopping. In most cases cars that don’t cost very much in tax now, are going to increase to a yearly standard flat tax rate of £140 (after the first year cost). Cars with high emissions now, may find that in the long run they are actually cheaper to tax than they are now, as they will be on the same flat rate of £140 after the first year.

Here’s a look at what the new charges will be for cars registered after April 1.

Car tax changes coming in 2017

How about for electric cars?

An electric car will still be exempt and pay nothing under the new scheme – unless they costs more than £40,000, when they’ll pay £310 for the first five years from April. That’s a total of £1550 in car tax – although it reverts back to tax-free status in year six. 

car tax for green cars

Cars that cost more than £40,000

If you’re buying a petrol car over £40,000, then you’ll have to pay your standard VED rate of £140, plus an additional rate of £310 for the first five years. This means you’ll pay a total of £450 a year, or £2,250 in the car tax in the first five years. This will revert back to your standard VED rate of £140 in the sixth year.

However, buying a higher-polluting vehicle that costs under £40,000 you’ll actually pay less under the new system than you would under the old one. Also, if you drive a hybrid or LPG, you might pay more or less than previously – depending on your emissions. (We did say it was complicated.)

What else has changed?

As you can see above, the new system has done away with the old lettered bands and tax will now be categorised according to emissions - calculated as grams of CO2 emitted per kilometre travelled (g/km). The CO2 figure for your car can be found on your V5c regristration document as it has to be officially measured before a car can be sold. Alternatively you can check tax bands here. All you need is the vehicle's make and registration number (paper discs were phased out in 2014). 

Also the Treasury says that money raised by the new tax will be ringfenced purely to cover the cost of new roads and maintenance, whereas before it simply went into a big pot to be spent however the Govenment liked. 

Can I get away with paying no tax?

The vast majority of car owners will have to pay some tax. It’s the law. However, there is one exception – zero emissions still equals zero tax (unless the new car costs £40,000 or more). And, as mentioned, while hybrids will be taxed more than before, they’re still cheaper in terms of road tax than many standard family cars. For more details, check our guide to tax-exempt cars.

It's also worth noting that if you've paid towards your tax and decide to take your car off the road for whatever reason, then you might be eligible for a tax refund. See our guide on car tax refunds explained

What does all this mean in the real world?

To help you out, we’ve compared the new tax on two very different cars to give you an example of how the new system works.

Firstly, let’s take the Suzuki Celerio, a 1-litre city car with low CO2 emissions of only 99g/km. Under existing rules, it is exempt from car tax. From April, it will cost you £100 in year one and £140 thereafter. That’s £1,360 if you keep the car for 10 years.

Now let’s imagine buying a Nissan 370 Z. Costing around £28,000, its 3.7-litre engine emits 248g/km of CO2. While you’ll still pay more than you would with the Celerio, you’ll pay considerably less than under existing rules.

Under current rules you’d pay £870 in year one and £490 each year afterwards. Under the new regime in April you’d pay a much larger £1700 in year one, but then only £140 each year afterwards. That means if you buy a new Nissan in April you’ll pay £2,960 car tax over 10 years as opposed to £5,280 now.

So what’s the bottom line?

Basically, you’re probably going to be paying more in car tax – and in some cases a lot more. The more your car costs and the more pollution it causes, the greater your tax bill. So if you’re in the market for a new vehicle, it’s a good idea to tot up what all your running costs will be (insurance, fuel, parking etc, as well as tax) before signing any deal

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