Motoring taxes: reduce how much you pay to prop up the country
Driving a steam engine could help cut your motoring tax bill
A tax targeted at the owners of mansions worth more than £2m is being proposed as part of Labour’s plans to shore up the NHS.
Whether you think that’s a good idea or not, there is no doubt about the extent to which the UK economy is already supported by the various forms of tax collected from motorists.
The most recent estimates suggest that motoring-related taxes amount to around £38bn annually, almost seven per cent of total UK taxation.
Whatever becomes of Labour’s proposed mansion tax, the motorist is already shoring up the economy. Here’s how that stacks up and how you can reduce the amount of motoring money you hand over to the chancellor each year.
Tax on fuel
Research by the RAC Foundation recently found that British drivers pay a higher rate of tax on fuel than any other motorists in the European Union. Buy a litre of unleaded and around 61% of the pump price will go to the Government as fuel duty and VAT. The proportion of tax payable on the price of diesel is only marginally less than petrol, with fuel duty and VAT accounting for around 59% of the price of a litre. Logic suggests that buying a diesel car will reduce your tax burden. But that could increase your motoring costs in other ways. Diesel is more expensive than petrol and politicians appears to have fallen out of love with derv. Mayor of London Boris Johnson proposing a diesel charge of £10 for cars travelling into London. The best way right now to reduce the amount of fuel tax you pay is to buy a more economical car and reduce the amount of fuel you have to buy.
VAT on cars
Buy any new car and you will pay the standard rate of VAT, which is currently 20%. Depreciation means that buying a nearly new vehicle almost always makes economic sense. Car dealers selling second hand vehicles can choose to calculate the VAT element of the screen price based only on the profit they make from the sale, rather than the whole value of the car. Assuming a dealer chooses to pass on savings, that could mean that going second hand will mean paying a lot less VAT.
VED and Road tax
It is estimated that the Government collects in the region of £5bn a year in Vehicle Excise Duty, or road tax. Tax discs are being phased out from October 1 but drivers will still have to pay to tax their cars. The amount most drivers pay is based on the quantity of carbon dioxide their vehicle produced per kilometre. Buy a car which produces less pollution per mile and you’ll pay less in road tax. Buy one which produces 99 g/km of C02 or less and you’ll pay no road tax at all. Another way to avoid paying road tax is to buy a car registered before 1 January 1974, or invest in a steam-powered vehicle, as they too are exempt!
Picture by Barry Skeates https://flic.kr/p/oDWd98
Tax on parts and accessories
Most of the parts and accessories you buy for your car will be liable for the 20% rate of VAT. However, it’s worth remembering that some motoring-related items are sold with a reduced rate of VAT. The rate of VAT payable on cars seats for children is only 5%, while motorcycle helmets are exempt.
Insurance premium tax is added at a rate of 6%. There’s nothing you can do to avoid paying it but it’s just another reason why it’s always worth shopping around for your car insurance. The lower the pre-tax premium, the lower the amount of tax you will pay on the premium.
Company car tax
Being given a shiny new company Mondeo to drive isn’t now the perk it once was. Company car drivers are liable for a benefit in kind taxation based on the value of a vehicle and the amount of carbon dioxide it produces. Many company car drivers now choose to opt out of the company scheme and receive cash instead, freeing them to budget for motoring independently. Many opted out company motorists pay less tax and get a better car too.
Motoring.co.uk has a handy tool where you can check how much you will pay in tax, or the benefit in kind liability for a particular company vehicle.
Not technically a tax, the congestion charge still amounts to a levy on the motorist. However, drive a car which emits 75g/km of C02 or less and you’ll be exempt from paying the charge. At the moment, that probably means buying an electric car like the Volkswagen e-Golf or Chevrolet Volt and that could be expensive. But prices are likely to fall as interest in electric cars grows and market forces kick in.
Picture by mariordo59 https://flic.kr/p/dR6gnU