A major shake-up of the way UK road tax rates are calculated is just around the corner, and buyers who don’t have their wits about them could end up being hit hard in the wallet.
It’s been more than a year since the Government killed off the annual renewal system for paper tax discs, but while you can now make easy road tax payments by a direct debit set-up online, that doesn’t mean you can afford to take your eye off the ball. A dramatic change in road tax prices – officially known as Vehicle Excise Duty, or VED – will come into effect on the 1st of April 2017.
Depending on the purchase price and emissions of the new car you want to lease or buy, it may pay to delay your purchase until after the changes are implemented. In other cases it will pay to make sure you’ve registered your new car before the critical deadline arrives.
This guide to the changes in VED explains what the changes mean for you. So check out the details and see how you could save.
The current road tax regime is costing the exchequer a packet as carmakers have slashed the CO2 emissions of their cars to take advantage of the generous VED tax bands for lower-emissions vehicles.
In fact, it’s reckoned that a quarter of new cars registered don’t pay any road tax at all as they fall into VED Band A for vehicles with CO2 emissions of less than 100g/km.
At present, new cars have to reach Band D (121-130g/km) before any significant annual road tax is charged. With tax revenues set to fall further as cars continue to get cleaner, the chancellor has deemed the situation ‘unsustainable’.
Cars registered after April 1st 2017 will pay a one-off tax charge for the first year, with rates decided by a heavily revised version of the current CO2-based tax band system.
The adjustments mean most buyers will see their first year tax charge virtually doubled, while only zero-emissions vehicles will get away with paying nothing at all.
From the second year onwards, the CO2 scale becomes irrelevant, as two flat rates will then be applied – a £0 (zero) VED rate for zero-emissions vehicles only, and a flat annual rate of £140 for all other cars.
While cars costing over £40,000 will also be liable for the £140 VED rate from year two, they will also be forced to pay an additional annual ‘supplement’ of £310 for the first five years.
That means expensive £40k+ zero-emissions cars will no longer get away with a free ride, as they’ll have to pay the £310 supplement. Everything else in the £40k+ bracket will pay £450 a year (£310 supplement + £140 flat rate) until that five-year period is over and they revert to the £140 flat rate.
|VED car tax bands for cars first registered from 2017 onwards|
|Emissions (g/km of CO2)||First year rate||Standard rate|
|Cars above £40,000 pay £310 annual supplement for five years|
|CO2 Emissions in g/km (tax band)||First year rate||Annual rate|
|Up to 100 (A)||£0||£0|
|Over 255 (M)||£1,100||£505|
As the rule changes are designed to net the exchequer more cash from popular eco-friendly cars, it stands to reason that these are the vehicles the new rules will hit hardest.
The 2017 changes will mean a car that is CO2 rated at 100g/km or lower – and thus free of road tax for life under the current VED band system – will cost its owner £400 over three years, £680 over 5 years, or a whopping £1,380 over ten years. If you can buy the same car before the April 1st deadline, you’d be mad not to.
On the other hand, if you aspire to a reasonably-priced sporty model or SUV rated at 226g/km of CO2 or above, and if you intend to treasure it for years, you’ll be on to a winner. Buying that car after the April 1st deadline could save you almost £600 over five years – or nearly £2,500 if you keep it for 10 years. (That’s roughly equivalent to a year’s free petrol in a thirsty 20mpg car, doing 10,000 miles per year!)
In the over £40,000 bracket, the option is even more clear-cut. Unless your chosen car emits more than 226g/km AND you intend to keep it for the best part of ten years, you’ll be much worse off buying after April 1st 2017.
An expensive 100g/km model that is currently free of VED will - under the new rules - cost £1,020 extra over three years, £1,920 extra over three years, and £2,930 extra over 10 years.
As if that wasn’t enough bad news, in all the ‘worst case scenarios’ the new rules are likely to adversely affect used car values for post-April 1st, 2017 registrations, too.
Current road tax bands won’t change for cars that are already registered, so the existing VED bands will remain in place. Fortunately for owners, the old/existing rates for CO2 bands are much more favourable to higher-polluting vehicles.
While the 2017 VED rate shake-up will affect a lot of motorists, the system for collecting and enforcing road tax is not being changed again.
The 2014 overhaul of the road tax arrangements ended the tax disc's 93-year reign and has already made the whole system cheaper to run. There is a catch, however, as you'll find out below.
The current road tax set-up also makes it tougher for those seeking to avoid paying road tax. Rather than the visual check that the tax disc made possible, the authorities now rely on number-plate recognition cameras to determine that a vehicle has been taxed.
Although it’s no longer a requirement to display a tax disc in your windscreen, this doesn’t mean you don’t have to pay car. The DVLA will send you a reminder when your road tax is up for renewal in the time-honoured fashion, and you can continue to pay your road tax online, over the phone or at the Post Office.
The road tax price bands remain the same, as do the existing options of paying for 12 or 6 months tax upfront but there’s also the option of paying your car tax monthly. This new monthly option arrives in tandem with the facility to pay your road tax by Direct Debit.
Drivers paying in monthly installments from their bank accounts will be subject to a 5% surcharge on top of the road tax price itself. That’s less than the 10% that’s added when you pay for six months tax, an option currently used by 23% of motorists. Only the one-off annual payment comes with no extra charges.
The key advantage of paying your car tax by Direct Debit is that the DVLA will continue taking the payments until you tell them to stop. It means that although you’ll no longer have an expiry date on the disc stuck to your windscreen, you’ll no longer need to remember it anyway. Your tax will be renewed automatically, and you can get on with more exciting stuff - like remembering your MOT.
Under the new car tax system, any remaining road tax will not transfer to the new owner with the vehicle. Instead, the seller can get a road tax refund on any tax remaining on the vehicle, while the buyer has to pay to re-tax the car.
The tax refund on a sold car will be sent automatically when the DVLA receives notification that the car has been sold, scrapped, exported or taken off the road with a Statutory Off Road Notification (SORN).
Sellers are expected to inform the DVLA of any change of ownership straight away or face a £1,000 fine. If they don’t, they could also still be liable for speeding or parking fines incurred by the new owner.
Information on whether or not a car is taxed is available online via the Government website. All you need is the make and model of the car plus the registration number.
So far, so good for the new road tax system but as often seems to be the case, there is a catch.
The problem that's getting motorists riled centres around the refund you get on outstanding road tax when you sell your car. When ownership of a vehicle is transferred the previous owner gets a refund on any outstanding road tax but that refund is calculated from the beginning of the next month. The new owner, on the other hand, has to tax the car anew and their bill is calculated from the beginning of the current month.
What this means is that the Government effectively collects two lots of tax on the car for the month where ownership is transferred, one from the new owner who pays for that month and one from the previous owner who doesn’t get the tax for that month included in their refund. It's sneaky stuff and should give a useful boost to the exchequer, but at the expense of motorists.