There are big changes coming as part of a new road tax system, biggest amongst them is a complete revision of the vehicle tax bands that will affect anyone buying a new car from April 2017.
Under current car tax rules, most new car buyers find that their vehicles produce so little CO2 (the large deciding factor in where in the bands the car falls), that they pay very little (if any) Vehicle Excise Duty (VED) - a result of which is now costing the Treasury millions.
To combat this, the exchequer is introducing a new system where low-emission petrol and diesel cars will no longer be tax exempt, and VED will only be free for vehicles with no tailpipe emissions - so that's electric and hydrogen cars only.
Here's how the current rates break down.
| VED Band | CO2 Emissions | First Year Tax | Ongoing Annual Tax |
|---|---|---|---|
| A | Up to 100 g/km | £0 | £0 |
| B | 101-110 g/km | £0 | £20 |
| C | 111-120 g/km | £0 | £30 |
| D | 121-130 g/km | £0 | £110 |
| E | 131-140 g/km | £130 | £130 |
| F | 141-150 g/km | £145 | £145 |
| G | 151-165 g/km | £185 | £185 |
| H | 166-175 g/km | £300 | £210 |
| I | 176-185 g/km | £355 | £230 |
| J | 186-200 g/km | £500 | £270 |
| K | 201-225 g/km | £650 | £295 |
| L | 226-255 g/km | £885 | £500 |
| M | Over 255 g/km | £1,120 | £515 |
New vehicles will now pay a first year tax governed by their emissions (similar to the current banding system), but from year two onwards CO2 figures become irrelevant and two flat rates will be applied. A £0 rate for zero-emission vehicles, and £140 for everyone else.
| CO2 Emissions | First Year Tax | Ongoing Annual Tax |
|---|---|---|
| 0 g/km | £0 | £0 |
| 1-50 g/km | £10 | £140 |
| 51-75 g/km | £25 | £140 |
| 76-90 g/km | £100 | £140 |
| 91-100 g/km | £120 | £140 |
| 101-110 g/km | £140 | £140 |
| 111-130 g/km | £160 | £140 |
| 131-150 g/km | £200 | £140 |
| 151-170 g/km | £500 | £140 |
| 171-190 g/km | £800 | £140 |
| 191-225 g/km | £1,200 | £140 |
| 226-255 g/km | £1,700 | £140 |
| Over 255 g/km | £2,000 | £140 |
That's not the only change though. There's a new 5 year annual 'supplement' to pay for cars costing over £40K, which will be priced at £310.
The new rules will only apply to vehicles first registered on/after April 1st 2017, so vehicles currently on the road will continue with the current tax banding.
If you're considering buying a new car then do your sums before deciding if you should buy before or after these new rates take effect. Typically lower-polluting vehicles will be worse off after the new rules kick in, as will those buying top end £40K+ vehicles, but if you're in the middle of the market - perhaps with something rated at 226g/km CO2 - the new flat rate could actually save money if you buy after April.