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GUEST BLOG: Big changes are coming to road tax

The New Year will ring in big changes for Vehicle Excise Duty (VED). The HMRC is moving the bands that calculate the tax payable against the CO2 emissions of a new car.

The new bands kick in on 1 April 2017, and there are winners and losers. It pays to understand how these could impact on a new car purchase. 

Buyers are faced with the decision of waiting until the changes are introduced or, if it is more cost effective, to buy a car before the end of March.

The changes will mean 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 after that. It means that car tax isn't based on CO2 emissions after the first year.

Cleaner vehicles are incentivised with electric cars exempt from VED. But for those with deeper pockets, a car costing more than £40,000 will have to pay an additional £310 a year, for five years. 

The current VED structure based on CO2 bands was introduced in 2001 when the average UK new car emissions were 178 gCO2/km. The Band A threshold of 100 gCO2/km or below, which cars pay no VED, was introduced in 2003 when average new car emissions were 173 gCO2/km.

To meet EU emissions targets, average new car emissions have fallen to 125 gCO2/km. This means that an increasingly large number of ordinary cars now fall into the zero- or lower- rated VED bands, creating a sustainability challenge and weakening the environmental signal in VED.

The reformed VED system strengthens the CO2-based first-year tax to incentivise uptake of the very cleanest cars while moving to a flat tax after that, to make it fairer, simpler and sustainable.

Our experts at cap hpi predict the changes will have little impact on the used values of cars. The main reason being that the difference in VED is a very small percentage of the cost of buying and running a vehicle (compared to say depreciation/ maintenance/ insurance) so will not factor in the thinking of a used buyer.  There may be some short-term variation in pricing but this is likely to be negligible.


New VED regime:

Emissions (g/CO2/km)

First year rate

Standard rate*





































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By James Dower at 28 Nov 2016, 09:24 AM


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