Drivers could pay £2,135 a year in road tax

Treasury plots retrospective VED hikes as Government wants to link annual road tax system for cars registered since April 2017 to CO2 emissions

This week’s budget may have seemed a motorist-friendly affair, but a consultation into retrospectively changing the Vehicle Excise Duty (road tax) system for cars registered on or after 1 April 2017 could hit millions of motorists hard in the pocket. 

A document produced by HM Treasury laments the fact that the flat-rate VED introduced in 2017 “weakened the link between VED liabilities and carbon emissions after a vehicle is first registered.” To help re-establish that link, the Treasury is considering a number of options, which could all increase the amount of road tax drivers of affected cars pay.

The current system of road tax sees a vehicle’s first-year rate based on its carbon dioxide emissions, with buyers paying between £0 (for an electric car) to £2,135 (for a car emitting over 255g/km of CO2). The first year of road tax is typically rolled into monthly repayments on a new car and, after the first year, the present system sees a flat £145 annual road tax rate introduced.

That could all change if the Treasury’s consultation brings about new policy. One suggested option is to make each annual road tax payment the same as a vehicle’s first-year rate. This means that someone who, since 1 April 2017, bought a car that emits over 255g/km of CO2 would be liable to pay £2,135 in road tax annually.

Another possibility is to extend the first-year rate of tax by a fixed period, rather than in perpetuity, while a third option is to introduce a new CO2-based annual system with a different rate to the first-year rate. The Treasury suggests a three-tier system that would see “as a zero-rating for zero emission vehicles, a lower rate for vehicles with emissions from 1 to 150 g/km, and a higher rate for vehicles with emissions exceeding 151 g/km”.

With annual new-car registrations standing at roughly two million vehicles a year, the moves could hit around five million motorists with significantly increased tax rates.

The Treasury is also considering changing the first-year rate of road tax to introduce a more granular system. It argues that with the current system being based on bands (cars that emit between 111g/km and 130g/km of CO2 pay attract a £170 first-year rate, for example), manufacturers are not encouraged to reduce emissions within those bands.

It proposes a formula that would see first-year VED calculated based on individual CO2 measurements, rather than by broad bands. In the example provided a car that emits 100g/km of CO2 would attract a £125 first-year VED rate.

These changes, the Treasury says, are being considered because “as car buyers are, on average, making higher emitting choices, the government believes first licence VED incentives could be more effective in guiding consumer behaviour.”

Commenting on the consultation, Edmund King, AA president, added: “ The public will expect a fair system of vehicle taxation and hence any changes shouldn’t apply to those that have already bought vehicles in good faith. For new vehicles the first year VED often gets lost in the purchase price of the vehicle but in subsequent years having a fair charge based on carbon emissions would make sense. We would welcome the idea of continuing with a zero rating for full electric vehicles and highly discounted rates for hybrids.”

Click here for our in-depth guide to VED road tax...

Recommended

Banned car number plates: the 24-reg numbers too rude for the roads
Number plates
News

Banned car number plates: the 24-reg numbers too rude for the roads

The DVLA has revealed its list of new-for-2024 number plates judged too saucy for the streets, and there are plenty of potential shockers on the banne…
21 Feb 2024
Don’t hand over new car deposits until you’re ready, says industry watchdog
Finance agreement
News

Don’t hand over new car deposits until you’re ready, says industry watchdog

The motor ombudsman has issued a timely warning as the new number plate sales rush looms this March
21 Feb 2024
Double-cab pick-up truck tax explained
Isuzu D-Max - front 3/4 static
Tips & advice

Double-cab pick-up truck tax explained

The inside line on HMRC’s VAT and Benefit-in-Kind tax rules for those using double-cab pick-ups as company vehicles
19 Feb 2024
Never-ending backlog predicted as 5m learner drivers fight for 1.8m driving test slots in 2024
Crumpled up L-plate
News

Never-ending backlog predicted as 5m learner drivers fight for 1.8m driving test slots in 2024

Without an increase in driving test capacity learner drivers face more long waits for test slots, and there’s no end to the delays in sight
19 Feb 2024

Most Popular

Government in major U-turn on pick-up truck tax changes
Ford Ranger - side
News

Government in major U-turn on pick-up truck tax changes

HMRC scraps its plan to axe the benefit-in-kind ‘loophole’ for pick-ups, a week after announcing it
19 Feb 2024
“Some manufacturers are losing their appetite for electric cars”
Opinion - Ford Explorer
Opinion

“Some manufacturers are losing their appetite for electric cars”

With EV market share shrinking, Mike Rutherford thinks there might be delays to the proposed 2035 ban on the sale of new petrol and diesel cars
19 Feb 2024
New Dacia C-Neo hatchback has the Volkswagen Golf in its crosshairs
Dacia C-Neo exclusive image - front
News

New Dacia C-Neo hatchback has the Volkswagen Golf in its crosshairs

The Dacia C-Neo is set to trump many hatchback rivals when it comes to space, and our exclusive images preview how it could look
16 Feb 2024