vehicle excise duty rates for 2017
Tesla owners enjoy free supercharging but those buying a new car after April 2017 will face £310-a-year road tax for five years despite zero emissions
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THERE’S no such thing as a free lunch and the days were numbered for tax-free new car motoring for many, thanks to George Osborne’s 2015 summer budget surprise shake-up of vehicle excise duty rates for 2017.

The road fund licence, abolished as such in 1936, makes a comeback under the changes from April 1, 2017, when all vehicle excise duty (VED) revenue will be devoted to road-building and maintenance.

It was inevitable, with an increasing number of modern vehicles liable for little or no VED while simultaneously using a lot less fuel and therefore contributing less in duty on a commodity which had also plummeted in price, hitting both excise and VAT returns for the Treasury.

This shake-up does not affect any current cars or those registered up to March 31, 2017.

But from the next day any new car that emits as little as one gram of CO2 per kilometre will face future financial levies, with £140 standard rate annual VED, and for alternatively fuelled vehicles (AFRs) – such as hybrids and those running on bi-ethanol and LPG – just a £10 reduction sop on first-year and standard rate in each band in subsequent years.

That’s a big leap from the present system where Vehicle Excise Duty is free up to 100g/km (Band A), giving more than 40,000 motorised road users the same tax easement as a cyclist, and tens of thousands more paying as little as £20 a year.

Only the purest electric-only cars will escape – but then only if their list price is under £40,000. One penny over, or more such as for a £60,000 Tesla S, and it gets pricey with a £310p.a. ‘premium’ rate VED for the second to sixth years.

Chancellor George Osborne broke the news in just 100 words or so, but it was something of a bombshell for a motor industry that has been diligently investing billions for carving down emissions towards the next Euro deadline in 2020.

The statement said: “This measure reforms Vehicle Excise Duty (VED) for cars first registered from 1 April 2017 onwards. First Year Rates (FYRs) of VED will vary according to the carbon dioxide (CO2) emissions of the vehicle.

“A flat Standard Rate (SR) of £140 will apply in all subsequent years, except for zero-emission cars for which the SR will be £0.

“Cars with a list price above £40,000 will attract a supplement of £310 on their SR for the first 5 years in which a SR is paid.

“All cars first registered before 1 April 2017 will remain in the current VED system, which will not change.”

In fact even that definition was incomplete when it came to alternative fuelled vehicles (AFVs) – new cars registered from April that are hybrid or run on bi-ethanol or LPG will be subject to a standard rate of £130 rather than £140 in the second to sixth years.

At the moment there are currently 445 car models in tax band A (£0), with only 13 models that are pure electric (zero CO2). There are a further 62 cars in band A which are hybrids (electric/petrol, electric/diesel).

Every mainstream manufacturer has made the green push, with Nissan Leaf top of the sales charts, followed by Mitsubishi’s Outlander, BMW i3, Renault Zoe, Toyota Prius, Vauxhall Ampera and Tesla S.

There are now more business user incentives and the Government’s plug-in grants  to offset the higher costs of such cars and vans have been confirmed up to March 2018. These are:

  • 35% of the cost of a car, up to a maximum of either £2,500 or £4,500 depending on the model
  • 20% of the cost of a van, up to a maximum of £8,000

What complicates the first major overhaul of the vehicle excise duty system in decades is that while there are still to be 13 bands, these all change with band A up to 100g replaced by five bands, only the lowest of which – for zero emissions – carries no first year duty.

First year duty changes see a substantial ramping up of the ‘showroom tax’ element once you get above the current band H (above 150g/km), with increases of several hundred pounds in each band, topped by a leap from £1,100 to £2,000 for over 255g/km.

For those spending on individual vehicles the higher first-year tax might be a small proportion of the drive-away cost, but in fleets the cumulative effect can be substantial – a £300 rise on 100 cars is £30,000, or another premium car.

But another major crunch comes with the new £40,000 price break, above which adds £310 to the standard rate annual VED from years two to six, in most cases totalling £450.

For the most powerful cars, this will actually bring a lower rate over 226g/km, such as for Aston Martins, Bentleys, Rolls-Royces and other exotica.

But it brings something of a dilemma for manufacturers like Audi, BMW, Lexus and Mercedes where £40,000 is low to mid price range.

Why should someone buy a 3-litre TDi burdened with £450-a-year road tax when a lusty 2-litre with just a few less horses will save over £600 tax over the first three years.

Just as pertinent, residuals are sure to be hit when the £40,000+ car is disposed of after three years for a lot less still shackled to that VED loading for another three years – and just as mechanicals start to show their fragility.

An extreme example is the Mercedes-Benz C300 BlueTec Hybrid AMG Auto Premier which in current guise emits just 100g/km CO2 and therefore carries no first year tax bill and is zero-rated after that – but tips the bank balance at over £40,525.

Buy one anytime up to March 31, 2017, and you can enjoy those no-cost rates but buy the next day and you’d be a real April Fool with £120 tax for year one and then £2,250 VED over the next five years.

By comparison – if prices stand in 2017 – you could pick up a Porsche Cayman for under £40,000 and pay £140-a-year road tax.

Then again, if you order your supercar or limousine for April 2017 and bite the tax bullet for six years, you can then look forward to just £140 annual road tax, oil supplies and chancellors permitting.

So it’s time for head-scratching and working on your company car strategy for the rest of the decade… especially if you want to take delivery by March 31, 2017. There could be a bit of a queue.

Editor’s Note:
100% rates exemption and 50% rates discount will continue to be available to people in receipt of the mobility component of Disability Living Allowance or Personal Independence Payments.

Changes in Vehicle Excise Duty effective from April 1, 2017

First Year Rates (FYRs) of VED will vary according to the carbon dioxide (CO2) emissions of the vehicle. A flat Standard Rate (SR) of £140 will apply in all subsequent years, except for zero-emission cars for which the SR will be £0.

Cars with a list price above £40,000 will attract a supplement of £310 on their SR for the first 5 years in which a SR is paid.

All cars first registered before 1 April 2017 will remain in the current VED system, which will not change. The new rates and bands for the post-2017 VED system are set out in the table below:

New Vehicle Excise Duty rates – for petrol/diesel/electric cars registered from April 2017 (2016/17 rates in brackets). Note that AFVs including hybrids and LPG pay £10 less on 1st year and Standard Rate

Emissions (g/CO2/km) April 2017 1st year rate          (2016) Standard rate*  from April 2017      (2016)
0 £0                               (£0) £0                             (£0)
1-50 £10                            (£0) £140                        (£0)
51-75 £25                            (£0) £140                        (£0)
76-90 £100                          (£0) £140                        (£0)
91-100 £120                          (£0) £140                        (£0)
101-110 £140                          (£0) £140                        (£20)
111-130 £160                          (£0)

£140       (£30 to 120g,  £110 121-130)

131-150 £200          (£130 to 140, £145)

£140       (£130 to 140; £145 141-150)

151-170

£500         (£185 to 165, £300 to 175)

£140        (£185 to 165; £210 166-175)

171-190

£800          (£300 to 175; £355 176-185; £500 186-200)

£140        (£210; £230 176-185; £270 186-200)

191-225

£1200         (£500 to 200, then £650 201-225)

£140                      (£270, £295 201-225)

226-255 £1700                      (£885) £140                           (£500)
over 255 £2000                  (£1120) £140                           (£515)
*cars over £40,000 pay £310 supplement on top of SR for 5 years

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