28 July 2016 by Lawrence Cheung, Web Producer

  • Ford Mustang Fastback
  • Tesla Model S, grey, supercharger
  • Toyota Mirai, blue
  • Vauxhall Insignia VXR SuperSport
  • 2017 VED tax bands
  • 2017 VED tax bands after 12 months
  • Jaguar XF R-Sport, silver, driving rear
  • Restructured VED road tax rates from 1 April 2017
  • Zero-emission cars costing less than £40k exempt
  • Classic car tax exemption for 40-year-old models

Vehicle Excise Duty (VED), otherwise known as car tax, is set to change in 2017. Instead of being based solely on CO2 output as it is under the current scheme, there will be more to pay on cars that are more expensive to buy in the first place. 

Currently, any car producing less than 100g/km of CO2 is exempt from paying VED, but from 1 April 2017, only those producing 0g/km and costing less than £40,000 will qualify for this. 

The objective is to encourage vehicle manufacturers to work towards an average new car emissions level of 95g/km of CO2 over their whole fleet by 2020 - an objective legislated by the EU. That will represent a 40 percent reduction in new car emissions since 2007. Whether the UK still subscribes to this target post-Brexit remains to be seen.

The current car tax system

Two rates of VED apply at different periods of vehicle ownership: a first-year rate applies to the initial year of new vehicle ownership, while a standard rate applies for every subsequent year of ownership.

It's caculated based on the CO2 emissions the car produces, as we explain below.

What's changing?

From 1 April 2017, the restructured VED system below shows any vehicle emitting between 1-130g/km of CO2 will now be charged in the vehicle's first year of ownership from new. 

The standard rate applied to all subsequent years of vehicle ownership is now a constant £140 for any vehicle emitting more than 1g/km of CO2. Previously this was a variable rate (from £20 to £515) that applied to vehicles emitting at least 101g/km of CO2.

More tax for vehicles costing over £40,000

As a form of "fair contribution" to the VED system, buyers of more expensive cars will be hit with an additional £310 on top of the standard rate between years two and six. This applies to vehicles costing over £40,000 new regardless of their CO2 emissions.

This means a fully electric Tesla Model S will cost £310 a year between years two and six (totalling £1,550), while any CO2-emitting vehicle will cost £2,250 over the same period thanks to a £450 yearly bill.

Vehicle Excise Duty from 1 April 2017

Emissions (g/CO2/km)

First-year rate

Standard rate

0

£0

£0*

1-50

£10

£140*

51-75

£25

£140*

76-90

£100

£140*

91-100

£120

£140*

101-110

£140

£140*

111-130

£160

£140*

131-150

£200

£140*

151-170

£500

£140*

171-190

£800

£140*

191-225

£1,200

£140*

226-255

£1,700

£140*

over 255

£2,000

£140*

*cars over £40,000 pay an annual £310 supplement for 5 years

Vehicles built and purchased before 1 April 2017 will not be affected by these rates.

Classic car tax exemption

Vehicles built 40 years before 1 January of each calendar year will automatically be exempt from paying VED. That means when the new rules come in on 1 April 2017, any car built before 31 December 1976, won't need to pay any tax. However, owners will still have to apply for tax like all other drivers. 

 

Related articles:

Read our Parkers Investigates article to see who will be affected most by the 2017 tax system

Road tax rates before April 1, 2017

To renew your car tax online click here

Picture credit: Bloomberg