VAT slashed on greenest cars

By Julie Sinclair

09th August 2007

Huge tax breaks on green models could soon save buyers thousands of pounds on new cars. The Govern­ment is looking at slashing VAT from 17.5 per cent to only five per cent on the least polluting vehicles.

Our table shows how the cut would reduce the price of the UK’s most eco-friendly models. The list is based on CO2 emissions figures published by the Vehicle Certification Association (www.vcacarfueldata.org.uk).

Of the 10 cars listed, the biggest saving would be on Toyota’s Prius. The VAT cut would put its price at £15,886 – that’s a £1,891 reduction.

EU rules currently limit the number of products which can benefit from lower VAT. But Prime Minister Gordon Brown wants to extend the tax break. The change is expected to apply to cars and white goods – such as refrig­erators – which have particularly low energy or emissions ratings.

However, that’s not the only good news for green drivers. A new Gov­ernment White Paper could raise the pence-per-mile rate paid to employees driving on business in their own eco-friendly vehicles.

This is currently set at 40p for the first 10,000 miles. But big industry names – including the AA, the RAC Foundation and the Society of Motor Manu­facturers and Traders – are campaigning to get the rate increased.
Under their proposals, now being considered by ministers, drivers of low-emission vehicles could earn up to 55 pence per mile, adding £1,500 to their annual expense claims. This top band would apply to models emitting 135g/km of CO2 or less. But owners of cars with higher emissions (from 140g/km to 185g/km) would benefit, too. Their rate would rise to 45 pence per mile. Only the most polluting vehicles would lose out with the changes, as drivers could claim just 30p.