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Countdown to the new VED road tax: What it means for you

Published 23 August 2016

From April 2017, all new cars will be taxed against three new VED bands - zero, standard, premium - with taxation calculated on a combination of emissions and the list price of the vehicle. The changes will not impact existing cars on the road.

The move came after the former Chancellor of the Exchequer, George Osborne said that the VED system was unworkable, with three quarters of all new cars qualifying for zero VED. 

VED from April 2017 will see buyers paying a flat standard rate of £140 for most new cars, except those emitting zero CO2 will pay nothing. Cars with a list price above £40,000 including any extras will pay an additional £310 per year - £450 in total - for the first five years in which the standard rate is paid.

Most family car buyers will pay between £100 - £160 for the first year rate, while the most polluting cars (255g/km+ of CO2) will pay as much as £2000. 

The new VED system follows some significant changes in the way people tax their cars, with the paper disc scrapped in 2014 in favour of an electronic system. From 2020-21 the government will spend all of the revenue raised from VED on the road network only.

Looking for a tax free car before the new rules come into force? Check out the Sub-100gkm Club

How will the new VED rules affect me?

The current VED bands remain in place for all pre-2017 cars and the new rules will only impact vehicles bought and registered from 1 April 2017. However the rates for the current VED bands will probably rise.

Will electric car owners have to pay road tax? 

No. Electric vehicles will continue to qualify for zero-VED for the foreseeable future.

Tell me about the new VED bands

They're surprisingly simple. 'Zero' emission cars pay nothing, 'Standard' cars pay £140 a year and anything that costs more than £40,000 to buy will cost £140 a year, plus an additional £310 pa for the first five years. 

So owners of expensive cars are going to be worse off?

Some will, given the hike in the first year rate. Buyers of expensive hybrids will also be punished, although the Government claims that 95 per cent of car owners will pay £140 a year. 

How will this impact owners of hybrids or low emission vehicles

If you buy a hybrid or other vehicle with emissions below 100g/km after March 2017 you will have to pay £140 a year in VED. If it costs more than £40,000 to buy then that will come to a total of £450 a year. However, if you already own a hybrid (or buy one before 1 April 2017) you will continue to pay nothing.

Is the government going to make more money out this new system?

They assure us they won't, but we're not so sure because there's a LOT of low emission cars out there that will fall into the £140 a year in VED bracket. There is some good news though, all of the money raised from VED will eventually be used to improve the UK's road structure

What about vans?

VED for commercial vehicles remains unchanged, for now.

And classic cars? 

No change there either. They will continue to pay the standard VED rates for pre-2001 cars.

Comments

DirtyDieselDogg    on 24 August 2016

Smoke 'n mirrors, I note only the revenue from the VED, i.e. no mention of the fuel duty income, and 5 years down the road.

However a simple clear system, which on the face of it seems "fair" esp. the 5 year limit to the £350.00 surcharge on the £40,000.00 plus cars.

karenannanina    on 24 August 2016

The tax penalty on cars costing over £40,000 seems malicious and irrelevant to any discernible principle. It certainly has nothing to do with discouraging high emission levels. The impact on hybrids seems particularly ill-considered. £40,000 isn't a particularly high threshold, and even relatively humble plug-in hybrids like the Mitsubishi PHEV in its higher specs will be caught by it. The market in upmarket used cars will be distorted, with many buyers, especially low-mileage owners, unwilling to hand £40 a month road tax to the Chancellor yet also unhappy about taking on the complexities and potentially uncontrollable repair and maintenance costs of luxury cars that are more than 5 years old.

oldroverboy.    on 29 August 2016

The tax penalty on cars costing over £40,000 seems malicious.

No, it means that those who can afford those cars are asked to contribute more.

Don't want to pay it, buy a cheaper car.

(Oh, and destroy the premium British makers while you are at it)

terry59    on 30 August 2016

They should have abolished VED years ago and just put it on the fuel instead, so the more miles you did, the more you paid towards the repairs to the roads.

Now we have electric cars and low or zero emmission cars, its not so easy to do.

It does seem unfair though that if your car costs more than £40K including accessories that you have to pay more. What about those of us who have worked hard, saved enough money to buy a once in a life time car, that happens to be just over the £40K mark.

Just seems unfair, were not all drivers of Company cars you know!!

Ubermik    on 30 August 2016

A HUGE percentage of what we pay for fuel is added on by the government, so effectively they already HAVE moved the tax cost at a MUCH higher rate onto the fuel itself but decided to still make people pay road tax as well

The fairest option would simply be to scrap the road tax or drop it to a fixed amount for EVERYONE, including zero emission cars of something like £75 purely for the cost of the roads and then the emissions aspect would be covered already by how many miles you do multiplied by how efficient your car is

Although hybrids and electric cars SHOULD also be made to pay an additional fee too that is ringfenced purely for the expansion of the electricity grid and provision of charging points because why should that cost be shared out amongst ALL electricity consumers whether they have a car or not? Why should pensioners, the unemployed and anyone who has electricity be forced to subsidise the driving of relatively wealthy people who CAN afford to not only buy a car, but buy an above averagely expensive hybrid or electric car?

If they can afford to buy one of those they CAN also afford to pay for the extra infrastructure and extra (often coal or gas derived) electricity that will need to be generated and distributed to facilitate their purchase being used?

The idea is just ridiculous to make everyone else pay for the whims of an already fairly well off few

linedancer111    on 30 August 2016

Like Terry 59, the only fair way is scrap the Tax and charge it on the fuel used, that way, a Roller owner pays his/ hers fair share, compared to a small car.

this would also recoupe a bit of the Tax dodgers deficite ?

Ubermik    on 30 August 2016

As much as I am not a fan of merchant banksters et al the entire concept of paying more tax merely because the car costs more is just silly

That said, zero emission cars paying nothing is just as silly too as they wear out the roads just as much as any other car does plus they arent "zero" polluting as many power stations are still coal or gas powered anyway and if too many people adopted electric cars the cost of upgrading an already overstretched power grid would be immense, a cost EVERYONE whether they have a car or not would then have to pay for

So a fairer system would be to have the tax broken down into seperate parts, something like

£75 towards roads that EVERYONE pays,

£50 paid by electric cars that is ringfenced towards upgrading the electrical grid and providing charging points

£50-whatever for petrol cars based SOLELY on their fuel efficiency

£0 for how expensive the car is to buy, as that is ALREADY covered by VAT

The idea that zero or low emission cars shouldnt contribute towards the road systems maintenance and improvement is just nonsensical until they invent one that hovers 50 feet above the ground and doesnt require roads to be used

TICKENHAMTIGER    on 30 August 2016

How much does it cost to tax a TESLA? Clearly, they cost more that £40k but CO2 is zero.

MerlinFlyer    on 30 August 2016

Why should electric cars pay zero Vehicle Exise Licence. Do they not run on the roads and help to wear out the surface? Do they not add to the congestion now? What fancy tax would they dream up if we all changed to electric vehicles tomorrow, because I know one thing, we would not have free VED's then.

Edited by MerlinFlyer on 30/08/2016 at 13:33

keith40    on 30 August 2016

So we play Vat on the optimal extras and now if the take the car above 40k you pay extra road even if the co2 is lower alot of family cars are 40k

I am buying a Volvo xc60 that works out at 41k because of the Vat this is a normal family car.

What happens if the dealer discount the MRRP to below 40k do you pay the lower bed?

The road tax makes no sense there should just be a flat rate for all private cars. Then a separate rate for commercial vehicles with huge lorries pay 10k plus as they cause the most damage to roads and environment.

Driving on the m6 at various time in the last week for every 1 car there are 4 HGV and 6 vans of assorted sizes these are the vehicles that need to pay we should be encouraging road haulage back to rail hubs

We need an integrated commercial system for the UK to get the number of long distance lorries off the road plus we need to do something about foregien lorries who break the laws constantly speeding using the wrong lane forcing car drivers to move.

Plus we need to teach people to get over and stop lane hogging.

But as for the tax it's wrong it nice to see the are lowering the tax after five years it unfair that people who like a nice car should pay the same road tax on a used car but 5 years is two long most people change cars at 3 years so this should be revised to 3 years the government will always make money until VED is related to the roads systems including local. P!us we cannot trust local council to use this money for road repair unless it's ring fenced.

pmg    on 30 August 2016

Two steps backwards in car taxation. The first is gives no incentive to buy a cleaner car other than zero emission. The second it introduces another cliff in the tax system with the £40,000 trigger.

One of the worst changes Osbourne made and an opportunity lost

Bylane Bill    on 30 August 2016

This governement does make it up as it goes along doesnt it, no real change I guess. I've always thought that those who keep older cars on the road, in good order, thus saving all the resources needed in the building of more new cars, should pay less road tax as the years go by but I suppose thats far to radical for the bean counters of today, hey ho.

dogdays    on 7 September 2016

I suspct that all of us who own lowish CO2 cars are going to get a shock come 2017. As we no longer have tax disc it would make sense to just put it on the fuel at the pumps. That way the more you drive the more you pay. Still, I suppose its foolish to expect an ounce of common sense from any government.

Edited by dogdays on 07/09/2016 at 09:58

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