- VED rates change for all new cars registered from 01 April 2017
- On a fleet of 100 cars that can mean over £1000 a month extra in running costs
- Cars over £40,000 attract a special rate in years 2-6 of £310 extra a year
Is there a way to escape the rising costs?
- Yes – read on to find out strategies that can mitigate this additional tax on cars
- Grab a free consultation from Lookers Leasing on reducing your ongoing fleet costs
JUST picked up your 17-reg Ford Mustang muscle car? Sorry, this might hurt!
What are the changes to VED?
- Commence for all cars first registered from 01 April 2017
- First year rate based on CO2 emissions on a sliding scale from £10 to £2000
- Followed by a standard rate in subsequent years of £140
- Zero emission cars are exempt from all VED
- Cars costing over £40,000 attract a supplement of £310 to the standard rate for years 2 to 6
Because the new road tax system applying to new cars from April works both ways in a bizarre twist on the new emissions-based tax system.
Buy most models of a new Fiesta registered up to March 31 and you save at least £700 over six years compared with one registered from April 1. The reason? New cars lose the zero VED rate currently applying to 93 per cent of new Ford Fiestas – Britain’s best-selling car – thanks to emissions under 131g/km CO2 emissions.
But canny buyers who’ve got their new Mustang V8 muscle car booked for delivery AFTER the end of March stand to save nearly £1,000 in its first few years.
From April 1, Vehicle Excise Duty (VED) on every new car will first be calculated from its CO2 emissions, with most cars moving to a standard rate of £140 annually from the second year, whether it’s a squeaky clean low emission Fiesta or that 299g/km thumping 5-litre V8 Mustang.
And it’s going to increase leasing costs.
Cars with zero emissions will be exempt from new, hybrids get a £10 reduction on the new standard rate, while others priced over £40,000 – which the Mustang at £36,345 escapes – will be charged an extra £310 a year, on top of the standard rate, for the following five years.
Cars registered up to March 31 are not affected by the new rates and their existing rates will continue, albeit increased in line with the retail price index (RPI).
But the increases in road tax on new cars have to be taken on board, whether you buy or lease.
Andrew Collett of Lookers Leasing says they are actively trying to help businesses mitigate the increased cost of VED in April.
On a fleet of 100 cars the additional VED costs are £1,100 a month
Lookers Leasing points out to clients that most lease cars fall below the 130g/km CO2 threshold for rental allowances and they are the cars that these new rates will affect the most. For cars over £40,000 the addition of the supplement charge will further increase costs.
Ford’s new Edge SUV is on the cusp when it comes to the flagship Vignale 2.0 TDCi 210PS AWD which emits a moderate 152g/km CO2 for a first year VED of £500 (against £185 now) but the £40,850 price tag tips it into premium VED territory for £450-a-year tax years two to six, instead of £185.
So for three years’ lease the VED factor would be £1,400 instead of £555, an £845 increase. Choose a less expensive model and you reduce the increased tax bill to £225 and the lease costs accordingly.
But on that premium surcharge Lookers Leasing warns: “As the £40,000 is based on the list price as at delivery, if you order a car at £39,500 but there is a manufacturer price increase to £40,000 before delivery, then you will have to pay the supplement.”
Andrew says: “The typical increase for a business vehicle is around £400 over a three-year period which equates to an increase of about £11 a month in contract hire rentals.”
A classic example is the Audi A3 1.6TDi SE Technik 99g/km, for which both first year and standard rate VED costs nothing but from April comes in at £120 for the first year and £140 after that, so £400 over three years adding £11/month to the lease.
On a fleet of 100 cars that’s £1,100 a month or £13,200 a year – not a trifle by any means.
It’s the same for a Ford Mondeo 2.0TDCi Zetec 5dr 109g/km, currently £0 first year then £20pa which changes to £140 and £140pa for £380 or again £11/month.
Andrew continues: “On cars over a list price of £40k the rise is even more acute, from £800 and £24 a month.
He cites the BMW 530d SE Auto with 124g/km and list price £43,055 so with £840 extra VED it adds £24/month or £288/year – and running just 10 of those cars adds nearly £3,000 to the annual cost.
Andrew says: “This is straight income to the Treasury so nothing can be done about that payment.
“But this is now causing issues for many businesses in controlling costs of fleet vehicles at a time of many other input costs pressures.
“We are working closely with our clients and there are a number of initiatives that we can take to reduce or mitigate the increases.”
So what can you do?
Lookers Leasing has pinpointed the following moves to lessen the impact of the VED rises:
- Ensuring you use the optimum contract term and mileage
- Using a ‘whole life cost’ model to measure the true cost of vehicle provision
- Working with the client and manufacturers to reduce the choice of models and increasing available discounts
- Looking closely at vehicle specifications around the £40k tipping point
- Offering suitable alternative manufacturers and models
- Providing a coherent strategy to bring transparency into fleet costs and the tools to manage them effectively
Andrew said: “This is all provided free of charge by our experienced team of consultants. Whether or not you are fortunate enough to already be a Lookers Leasing customer, we are prepared to meet, analyse and propose solutions.”
Oh, and that Mustang? Because of the 299g/km CO emission, those registered before March 31 will be subject to first year tax of £1,120 and then £515 annually after that, which adds up to £2,150 over three years, £3,695 over six years. And leaves that £515 annual tax burden for the next keeper too.
Those registered from April 1 catch the new £2,000 first year rate but then pay £140 a year standard rate, totalling £2,280 over three years – £130 more – but £2,700 over six rather than £3,695 at the old rate. So it pays to hold your horses!