HomeTaxTime to Make a Clean Break

Time to Make a Clean Break

Laurence Vogel outlines the imminent changes to Vehicle Excise Duty


From April, there will be big changes to the way Vehicle Excise Duty (VED), commonly known as road tax, is calculated. The government has been concerned for some time that the current VED structure is too lenient and that the proliferation of low emission cars is having an adverse effect on the amount of money raised for the public purse from VED. The changes were first announced by the then Chancellor, George Osborne, as part of the 2015 Budget.

As cars continue to get cleaner and emit fewer emissions, the government was left with little choice but to tinker with the rules. This is because 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.

Three new bands of VED will be introduced for brand new cars from 1 April 2017: zero emission, standard and premium. From that date, the zero emission rate will only apply to cars with 0g/km CO2 and that cost less the £40,000. The standard rate, which will apply to most new cars, will be £140. There is a range of bands for the first-year rate.

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 means that from the second year of registration, cars costing over £40,000 will be liable to both the £140 VED rate plus an additional annual ‘supplement’ of £310 for the first five years. This is based on the list price of the car and is charged regardless of the cars emission rating.  

The premium rate of VED will even apply to zero emission cars costing more than £40,000. For example, the electric Tesla car, which costs over £40,000, would have a zero VED bill in the first year, followed by five years at £310 per year before reverting back to the standard rate of £140 per year.

The changes are also encouraging car manufacturers to develop and manufacture zero and Ultra Low Emission Vehicles. The demand for zero-emission vehicles is likely to increase significantly when the new rules come into effect. 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.

While owners of higher powered and luxury cars will pay more under the new rules the change will most impact those buying smaller and more economical cars.

It is important to remember that cars registered before 1 April 2017 will remain in the current VED system, which will not change. This gives anyone thinking of buying a new low emission car the opportunity to continue to benefit from the road tax exemption if they buy a new car before the April 2017. As things stand this benefit would continue for the life of the car and could represent a significant saving. It is also worth highlighting the fact that this will also apply to all low emission cars that you own or will be registered in your name before 1 April 2017.

  • Laurence Vogel is Head of UK Operations at Informanagement

Accounting Practice Online is part of the ICPA, which is an organisation designed to provide support and guidance for accountants in practice. With 35+ practice specific benefits there has never been a better time to join. Take a look at the routes to membership today.

Sign up to receive the latest news

    Related News