posted 2 weeks ago

New VED System For April 2017 Explained

How VED works from next year, the costs, examples and why a new system is required.

Applicable vehicles

The Government has confirmed that the Vehicle Excise Duty (VED) system for new models evolves on April 1st, 2017 and what it means for motorists. However, vehicles registered between March 1st 2001 and March 31st 2017 continue to be taxed via the current, emission-only, system and older models continue to be taxed by engine size (+/- 1,549cc).

The new system relates to a wide range of vehicles. See below.

CategoryDefinition
Category MMotor vehicles with at least 4 wheels designed and constructed for the carriage of passengers
Category M1 Vehicles designed and constructed for the carriage of passengers and comprising no more than 8 seats in addition to the driver’s seat.
Category M1 Special purpose(M1SP) Passenger carrying vehicles which are designed and constructed for special purposes. Vehicles which aretype approved as M1 Special Purpose are as follows:
  • motor homes/caravans
  • ambulances
  • wheelchair accessible vehicles
  • armour-plated vehicles,hearses.
Category M1 (M1G) Designed for off road use and meeting designed criteria.


How VED works from April 2017

From April 1st 2017, VED First Year Rates apply to brand new vehicles. The price is based entirely on carbon emissions. The lower the emissions the lower the cost which, of course, encourages motorists to favour more environmentally friendly models. For subsequent years, there are Standard Rates to consider. See below. 

Carbon Emissions (G/KM)First Year Rates (Petrol & Diesel)Standard Rates
0£0£0
1 - 50£10£140
51 - 75£25£140
76 - 90£100£140
91 - 100£120£140
101 - 110£140£140
111 - 130£160£140
131 - 150£200£140
151 - 170£500£140
171 - 190£800£140
191 - 225£1,200£140
226 - 255£1,700£140
Over 255£2,000£140

There are further points to note.

  • The Standard Rate for zero-emission vehicles is £0, rather than £140 as for all others.
  • All vehicles that have a new list price of £40,000+ are subject to the £310 Additional Rate from year 2 to 6 inclusive. It is on top of the Standard Rate which increase the cost to for zero-emission models to £310 and for all others to £450. From year 7 onward, only Standard Rates apply. 
  • VED alternatively fuelled vehicle rates are £10 lower than petrols/diesels.

Let us consider an example. A petrol vehicle has a list price of £20,000 and its carbon emission figure is 130g/km. On this basis, the First Year Rate is £160 and the Standard Rate is £140. The total cost over 6 years is £860 assuming the Standard Rate remains static.

Alternatively, a diesel powered vehicle has a new list price of £45,000 and its carbon emission figure is 226g/km. The First Year Rate is, therefore, £1,700, the Standard Rate is £140 and – from year 2 to 6 inclusive – it is subject to the £310 Additional Rate too. Total cost is £3,950 assuming there is no change to the rates.

Why VED has to evolve

The Government is revising the Vehicle Excise Duty system for several reasons. The current system - that runs from March 1st 2001 to March 31st 2017 - is based entirely on carbon emissions. Vehicles, therefore, sit in Categories A (up to 100g/km) to M (255+) with the least polluting models subject to the lowest rates.

Since 2003, Band A has been £0 for vehicles that emit carbon at a rate of 100g/km or less. When it was introduced, the average emission figure for a new vehicle was 173g/km. It is now 125g/km and falling, so the system evolved to ensure it continues to encourage people to pick the most environmental vehicles available.   

The Government said: “This (the lower average emission figure) means that an increasingly large number of ordinary cars now fall into the zero, or lower rated, VED bands which creates a sustainability challenge and weakening the environmental signal in VED.”

It added: “The reformed system retains and strengthens the CO2-based First Year Rates to incentive uptake of the very cleanest cars, whilst moving to flat Standard Rates in order to make the tax fairer, simpler and sustainable.”

“To ensure those who can afford the most expensive cars make a fair contribution, a supplement of £310 will be applied to the Standard Rate of cars with the list price (not including VED) over £40,000 for the first 5 years in which the Standard Rate is paid”, it said.

The Government has to consider the financial implications of retaining the current system too. In the near future, a large percentage of new vehicles will emit carbon at a rate of 100g/km or less which – as of the current rules – equates to Band A/£0. On this basis, the Government must change the rules to maintain income.