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Road tax blogThere are new laws for ‘road tax’ taking effect from April 2017 – DMA’s Gavin Lucas explains what’s happening and how you could be affected.

First of all, we should perhaps point out that there is no such thing as ‘road tax’, the tax that we pay as vehicle owners is actually vehicle excise duty (VED). So, it doesn’t go on how much you use the roads, miles you do etc. The tax solely relates to how much CO2 your car emits into the environment.

In recent years, this has been a boon for some car owners or prospective buyers as you have been able to get cars that pay rates as low as £20 per annum and some even at zero.

Only new cars affected

This is all going to change on 1st April 2017 when the Government introduces the new VED rules which we will explain here:-

  • We must stress at this point that this will only relate to new vehicles that are registered on or after 1st April 2017. So, the VED that you pay for your current vehicle will not be affected.
  • The new rules set out that in the vehicles first year of registration there will be a one-off tax which is based on the revised rates to pay for CO2 emissions that the vehicle emits. As an example, the Honda CRV 2.2 current VED is £300 per annum, under these new rates it will increase to £800. That is for that first year only.
  • After this first year of registration the level of CO2 emissions becomes irrelevant and all vehicles will revert to a standing charge of £140 per annum.
  • Further to that, if you purchase a car that has a list price of £40,000 or more, after the first year one-off tax that is CO2 emission dependent, then there will be additional tax of £310 on top of the standard rate for 5 years, before it reverts back to the standard only rate of £140 per annum. So, for those 5 years the total VED on vehicles that this applies to will be £450 per annum.
  • There is a caveat to this which is if the vehicle is a zero CO2 emissions vehicle where there will be a £0 standard rate. This will only apply to electric or hydrogen powered vehicles.

These changes to the VED rules have seemingly been brought about due to the ever growing popularity of low emission vehicles, which attract a low tax rate, which has been costing the Treasury millions in lost tax revenue.  There is inevitably going to be losers and winners under these changes

Check the boundaries before purchasing your new car

For example, if you currently own a low CO2 emission car and say pay no VED or £30/£50 per annum then if you were to purchase a new version of the same car after 1st April 2017 then you will be losing out under these new rules.

Your VED will increase to the standing charge of £140 per annum. Whereas, if you currently have a high CO2 emission vehicle and say pay £300 per annum, if you were to buy a new version of that car after the rules change, depending on if the list price is under £40,000, then you would only have to pay £140 per annum after the first year one-off charge.

With this in mind if you are currently thinking about purchasing a new vehicle it may be worth your while working out, with regards to the VED you would pay, whether it would be financially better to do so before the 1st April 2017 or after that date and under the new rules.