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UK VED car tax changes for 2017

by Saima Omar | 04 Nov 2016

What is car tax in the UK?

The official name is ‘Vehicle Excise Duty’, or more commonly referred to as VED – the name ‘road tax’ comes from the days when this fund would be reserved purely for repairing and maintaining the roads that we drive on.

The simple fact of the matter is, if you drive a car, you must pay a VED car tax – you’re accountable for road tax the instant you take ownership of your vehicle, whether you purchase it brand new from a dealer or second hand from a private seller.

The changes set for VED car tax in 2017

The 2017 scheme has plans for new cars paying the road tax, based on rationalised emissions ratings that take new technology such as hybrids and pure-electric cars into account.

After the first year, there will be three duty bands - zero emission, standard and premium.

If you buy a brand new car which is registered on or after 1 April 2017, then the car tax will reflect the VED rates according to your CO2 emission. AutoExpress and CarWow have devised tables to show the rates before and after the tax changes in 2017.

It is wise to look up the all-important g/km C02 rating of a new car, so you’ll know how much you’ll be expected to pay.

After the first year, a flat standard rate of £140 a year applies to all cars – although zero-emission vehicles continue to be free.

You also need to be aware….

Cars, which are above the list price of £40,000 at the time of registration, then you’ll have to pay a total of £450 a year after the first vehicle licence, for five years! It will later revert to the standard rate of £140 per year after the five years.

And finally….

All cars that were first registered before the new system comes into effect remain on the existing VED scale which will not change.

What does the budget have to do with the changes?

The 2015 Budget Statement alerted the public that new tax rates were to come for vehicles registered after 1 April 2017.

The car tax changes were set in motion by former Chancellor of the Exchequer, George Osbourne. It's likely to make the Treasury billions, as it means higher tax prices for all new cars in their first year but a lower fixed annual rate of £140 for most cars applying for road tax renewal thereafter.

George Osborne announced a new road improvement fund with VED car tax paying directly for road repairs:

"Every single penny" brought in by vehicle excise duty will go into a new road fund to pay solely for highways maintenance by the end of the decade – so this is basically reverting back to the term “road tax” – being used solely for road maintenance as it used to be. George Osborne revealed the formation of the road fund in his July 8 Budget (2015) in one of the biggest improvements to motoring in recent years.

Osborne said: "We will create a new roads fund from the end of this decade and every single penny raised in vehicle excise duty will go into that fund to pay for roads. The tax paid on people's cars will be used on the roads they drive on. It's a fairer tax system for motorists."

Vehicle excise duty will also be overhauled from 2017 because figures show that under the current scheme three quarters of all new cars would be exempt as they fall into VED Band A for vehicles with CO2 emissions of less than 100g/km.

Osborne mentioned in his budget speech that it's not fair that those who can afford new cars pay no tax while those who can only afford as used vehicle have to fork out for tax when both are using the roads.

Right now, new cars have to reach Band D (121-130g/km) before any significant annual road tax is charged. With tax revenues set to fall further as cars continue to get cleaner, the chancellor has considered the circumstances ‘unsustainable’.

In 2014, 69% of new cars registered in the UK were exempt from VED in their first year on the road because it was said they emitted CO2 of less than 131g/km and fell into bands A-D.

Now, in 2017, it has been confirmed, new cars to be charged VED with no first year exemption with new rates emissions ratings introduced for updated tech to create a more “sustainable” situation.

In a nutshell….

The 2017 changes will impact us like this: a car that is CO2 rated at 100g/km or lower – and therefore free of road tax for life under the current VED band system – will cost the owner £400 in the space of three years, £680 over 5 years, or a shocking £1,380 over ten years. If you can buy the same car before the April 1st deadline, then you should!

On the other hand, if you’re going to buy a sporty car, costing less than £40,000 which has a CO2 rated at 226g/km then you will save approximately £600 over five years because if you refer to one of the VED banding tables, at present, this type of vehicle would incur a charge of £885 for the first year, and then a £500 annual rate – whereas after April 2017, the rate would be £1,700 for the first year, and then drop to £140 each year after that.

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