On 1st April 2017, the DVLA is introducing sweeping changes to how vehicles are taxed. This will apply to all vehicles registered with them on or after this date. So, what’s the purpose of these changes, and what do they mean for you?
What are the changes and why are they taking place?
From April 2017, only zero emissions vehicles will avoid paying VED (vehicle excise duty). All other vehicles will still be assigned road tax bands based on their CO2 emissions for the first year, after which the majority will fall into a new 'standard' band costing £140 per year. Vehicles costing over £40,000 will also be grouped in a 'Premium' band, with drivers paying an extra £310 annually.
This is because the government is promoting the adoption of electric vehicles (EVs) and plugin hybrid electric vehicles (PHEVs) which, along with those emitting 75g/km of CO2 or less, are all classed as ultra-low emissions vehicles (ULEVs).
With these changes coming into force, the next few years will prove extremely interesting. This is particularly true for retired motorists who typically cover lower annual mileages, and could benefit from the still relatively limited ranges provided by fully electric cars.
What will I pay?
Under the new rules, the majority of drivers will pay more – as many as 7 in 10 drivers will. If you’re the driver of an electric or hydrogen car, you’ll be one of the few who pay less, as your vehicle will be exempt in its first year, and altogether if it has zero CO2 emissions.
The rate you pay in the first year you register your car will depend solely on its CO2 emissions. These emissions are calculated for every car model using a standard European test, and should be published in every brochure – so you can check before you buy. They’ll display the average amount of carbon dioxide produced per kilometre the car is driven, with a result shown in g/km CO2.
This result will be reflected in your first year rate. Cars with zero emissions will pay nothing, while those over 255g/km will pay the top rate of £2,000. Once you know your new car’s emission rate, check here to find out exactly how much you’ll pay in your first year.
In your second year and thereafter, the tax you pay on your vehicle will fall into three bands. Most standard vehicles will pay a new rate of £140 each year, while alternative fuel models will play a slightly reduced £130. Cars with zero CO2 emissions are fully exempt, and will continue to pay nothing.
Seems simple, right? Almost. If the list price of your vehicle is more than £40,000 when you buy it, the rules are slightly different.
What if my vehicle is valued at over £40,000?
If your vehicle is valued at over £40,000 when you purchase it, it falls into a specialist 'premium' band, and the rates are slightly different. The first year rate will be calculated based purely upon CO2 emissions as normal, but it’s in years two to six that things get complicated.
As with vehicles valued under £40,000, the car will be categorised into three bands – paying either £140, £130 or nothing for every single year it’s owned. But for five years, commencing the second year of ownership, an extra charge of £310 will be added each year.
This means that for the owner of a standard emissions vehicle valued over £40,000, from year two, will pay the £140 standard charge plus a £310 additional charge – giving a total of £450. Then, after the sixth year of ownership, the additional charge will end and the tax rate will drop to the standard £140 each year.
What should I do next?
It’s worth remembering if you bought your vehicle before 1st April 2017, these changes don't affect you.
If you're going to be buying a vehicle after this date, check its CO2 emissions before you commit. Once you know its rate, check the government’s guidelines to discover what you’ll pay in your first year.
Once you’ve got your head around these changes, it might be time to reconsider your next vehicle purchase. Consider how you use your car and what you need it for. Is an expensive gas-guzzler really worth the tax you’ll pay on it if you don’t really need it? If you only use your car as a local run-around, perhaps it’s time to consider electric next. It’s worth weighing up how much you could save with a zero emissions vehicle.