Time is running out… Beat the road tax increase from April 1st

This year the government will implement a new system of Vehicle Excise Duty (VED) and we think it’s important that you’re aware of the changes because it might have a big impact on you.

The new way in which road tax will be calculated won’t affect your existing car, but if you’re planning on buying a new car after 1st April 2017, then you could face a significant additional tax payment, hence it might be advantageous to change your car now rather than wait a couple of months to do so.

To help you avoid any costly surprises, we’ve put together a quick guide to help you understand how VED works at present and how it will work from April 2017 onwards.

How does the system work at present?

All cars registered before 1st March 2001 are taxed according to their engine size, with those below 1,549cc charged an annual rate of £140 and those above, £230.

Since March 2001, all new cars have been taxed based on their CO2 emissions, measured in grams per kilometre. The levels of CO2 are split into 13 bands, ranging from A (up to 100g/km) to M (over 255g/km), with each band attracting a different VED charge, calculated on a sliding scale.

There are also two rates per band, a first year rate that’s applied to the car the year it’s registered, and a standard rate that’s applied thereafter. For cars that emit low levels of CO2 both rates are the same, but for cars from Band H upwards the first year rate is significantly higher in an attempt to alert buyers to a cars high CO2 emissions.

In short, the point of the current system is to encourage the purchase of less polluting cars.

Why does the current system have to change?

As car manufacturers have reduced CO2 emissions, an increasing number of small and medium-sized cars now fall into tax bands A, B and C or £0, £20 and £30 VED per annum, which has become unworkable for the government. As a result, the government has devised a new system which, it claims, will make the whole system more sustainable.

How will the new system work?

As is already the case, the incoming VED system is designed to favour buyers of less polluting cars, although they’ll now be an even stronger weighting towards zero-emission or very low emission cars. Only zero-emission cars will remain fully exempt from VED and even these are subject to certain conditions.

From 1st April 2017, all new cars registered will still be subject to the 13 tax bands linked to their CO2 emissions, however, new bands have been created for cars emitting less than 100g/km CO2. The lowest first year rate will start at 1-50g/km with a charge of £10, rising in bands to £120 for a car emitting 91-100g/km. Compare this with the present system where cars under 100g/km pay nothing and the new VED rates are clear.

At present, the Suzuki Celerio SZ3 at 99g/km attracts no VED, but from April 2017 the same car will be liable for a first year tax rate of £120 then £140 each year thereafter.

Similarly, the new Suzuki Ignis SZ-T at 104g/km will increase from zero to £140 in its first year and £20 to £140 from then on.

In the above examples, you might have noticed that both cars face a standard rate VED charge of £140 under the new system? That’s because from April 2017, the CO2 determined bands will be replaced by a flat-rate charge of £140 from the second year and beyond – regardless of the cars emissions. On top of that, cars costing more than £40,000 to buy will be subject to an additional £310 annual taxation for five years.

To find out the new VED rates for the Suzuki range, click here.

Will my current car be taxed under the new system?

No – that’s the good news and that’s why it might be beneficial to buy yourself a new car before April 2017 so that you can continue to be taxed under the current system.

Inevitably, the changes to VED brings both good and bad news.

The good:

• If you buy a car before the end of March 2017, you’ll pay less road tax than if you delay your decision and buy after the system changes.
• If you buy a car before the end of March 2017, you’ll pay less road tax than if you delay your decision and buy after the system changes.
• If you buy a car emitting less than 100g/km CO2, you’ll be even better off since such cars attract no VED under the current system.
• The new standard flat-rate is simpler than the current emissions-based one.
• All cars over 40 years old will be considered classic vehicles and aren’t liable for VED.

The bad:

• Cars that attract no road tax today will do so under the new system regardless of which band they fall into, with £140 VED every year from their second year.
• The new system may discourage people from buying low-emitting cars – the AA reports 59% of its members say there’ll be no incentive to buy low CO2 emission cars under the new system.
• Only expensive, pure electric and hydrogen cars will pay no road tax.
• There’ll be a huge new car demand spike before April 2017 that might not benefit consumers.

We hope you’ve found this guide helpful, please get in touch if you have any questions regarding the reforms to VED.