On the 1st of April, the way that Vehicle Excise Duty is applied changed, with significant implications for new car buyers and owners alike. And no, though these changes came into effect on April Fool’s Day, they’re far from a joke. In fact, you’d be a fool not to learn how these changes are going to affect road tax and your wallet.
The introduction of VED
Vehicle Excise Duty (or VED) was introduced as a fairer alternative by George Osborne when he was still chancellor. The reasoning behind this was that those who could afford to pay for better quality cars that would emit less harmful pollutants would do so. And they could do so without being taxed a higher rate. The rate of tax they would then have to pay wouldn’t put them off paying for a better quality, more environmentally friendly vehicle.
Unfortunately for the government, this old system was resulting in millions of pounds of untapped revenue per year. As the CO2 emissions from cars began to dwindle, car tax revenue began to dwindle too. The amount of tax charged to the owners of these more environmentally-friendly cars wasn’t enough. As a result, things had to change.
The changes to car tax
Changes such as these can feel a little overwhelming at first, which is why we’ve broken them down below:
- Owners of cars registered before April 1 2017 will pay tax according to the previous rates. The amount of tax they pay will be dependent on the CO2 emissions of the vehicle.
- Cars registered after April 1 2017 will have a £140 flat fee to pay per year.
- Owners of cars worth more than £40,000 will have to pay £310 per year. This is on top of the general flat fee.
- Cars powered completely by electricity or hydrogen and with no tailpipe emissions will incur no tax whatsoever.
What this means for prospective buyers
The changes to the way tax is applied to new cars registered after April 1 2017 means there is little incentive for prospective buyers to look for more eco-friendly alternatives. In fact, as a flat rate is applied to all vehicles, car owners will pay the same rate. Unless, of course, they have absolutely no emissions whatsoever.
With this system, an owner of a hybrid car will pay the same amount in tax as a diesel car, so long as they are both priced above or below £40,000. Though this flat rate system no doubt makes it easier to process taxation, the issue is that there is no encouragement to buy a more eco-friendly car as not only do these cars tend to be more expensive anyway, but they will now definitely have no benefits in the form of lower tax payments.
Lance Bradley, Managing Director of Mitsubishi says, ‘cheaper VED is a huge incentive for people to drive more fuel-efficient vehicles. We think this is a dangerous backwards step. There’s a view that people who buy these [plug-in] cars are just taking advantage of the tax breaks and not using battery power. Owners say that 46 percent of their mileage is on pure electric. We want to get people out of diesels into cleaner cars.’
A lack of forethought
Clearly, the government have failed to take this into account, with the new system already being questioned for its fairness. An alternative suggested by the president of the AA, Edmund King, would be to have ‘a graduated system that taxes cars according to carbon dioxide and nitrogen oxide emissions combined.’ But it does appear that the government have well and truly made up their minds.
What do you think about the new road tax regulations? Let us know your thoughts in the comments section.