UK Tax

How Will The Changes In Road Tax Affect You?

A motorway in the United Kingdom

The Treasury has estimated that 2 million car owners will pay more for road tax as a result of changes in April 2018. But will you be one of them? Find out by reading about:

  • Why the government have changed road tax again
  • What the 3 types of road tax are in the UK
  • What the RDE1 and RDE2 regulations are
  • Who must pay the luxury tax on car purchases
  • How to reduce the VED you pay

Since April 2018, the government have made changes to the way that VED (Vehicle Excise Duty) is calculated. We look at why the government made changes to road tax, and what the three co-existing systems of car tax now are in the UK. What do these changes mean for car owners, and how can you reduce the car tax that you pay?



Why have the Government changed Road Tax again?

The reason for more changes to VED is to encourage more of Britain’s millions of motorists to opt for cleaner, low emission vehicles. This isn’t only an environmental problem. Air pollution has been estimated to cause 50,000 deaths a year in the UK. Higher levels of nitrogen dioxide in the atmosphere have been linked to more incidents of heart disease and lung cancer. For this reason, the new changes to road tax have targeted cars which run on diesel.

The reason for more changes to VED is to encourage more of Britain’s millions of motorists to opt for cleaner, low emission vehicles.

Before looking at the new rules which were unveiled in the Chancellor of the Exchequer’s 2017 Autumn Budget, let’s first consider all 3 tiers of road tax now in existence

What are the 3 types of Road Tax now imposed by the DVLA?

When looking at the different types of VED, it’s important to remember that dates refer to when the vehicle was first registered with the DVLA. If you bought a second-hand car and transferred ownership, the tax you pay will still be when the car was first registered (which you’ll find in the V5C registration document), and not when you purchased it.

1st March 2001- 31st March 2017

For vehicles registered in this period, owners paid a CO2 emission rate which was more expensive in the second year than in the first. All zero-emission cars and low-emission vehicles (producing under 100g/km CO2) were exempt from paying road tax.

A petrol station operating in the evening

From 1st April 2017

From this registration date, owners paid a CO2-based rate in the first year, and then a standard rate from the second year irrespective of CO2 emissions. The standard rate was £140 for petrol or diesel cars and £130 for alternative fuels or hybrid vehicles. Only zero-emission vehicles were now exempt from paying VED.

From 1st April 2018

Standard rate VED charges after the first year of registration are no longer flat rate, but vary depending on the type of car and the fuel it uses. The new changes particularly target diesel cars. Owners of these cars can pay up to £520 a year in tax if they produce 191/225g/km of CO2. The amount they pay depends if they comply with the RDE2 regulations.

What are the RDE1 and RDE2 regulations?

The RDE Step 1 and Step 2 regulations specify the emissions a car is allowed to produce. Unfortunately for British motorists, none of the diesel cars being produced at the moment comply with these regulations. Manufacturers don’t have to comply with RDE1 until September 2019 and with RDE2 until 2020-1.

There are no diesel cars in production which comply with RDE1-2 regulations

None of these additional taxes affect diesel-run vans or pick-ups yet. As they are classed as Light Commercial Vehicles (LCVs), they pay a flat rate of £240 a year.

Who must pay the Luxury Tax on Car Purchases?

Since 2017, car owners who buy a luxury car with a list price of £40,000 or over must pay a vehicle tax surcharge of £310 for the first 5 years. This is in addition to the standard VED, and is applicable to zero-emission cars too.

If owners choose add-ons which push the value of the car over the £40,000 mark, they’ll still have to pay the luxury car tax. Even getting a discount which puts them under this limit won’t help them to dodge this tax. The figure refers to the list price of the car (without a discount).

How to reduce your VED

When buying a car, you of course have to make sure that the make/model is suitable for your needs. But you also have to consider the running costs including how much you’ll have to pay for road tax. You should do your research beforehand and check the CO2 emissions of the car before you buy.

A car exhaust which produces CO2 emissions when the vehicle is in operation

Your Road Tax payment methods

Another way to reduce the amount you pay for car tax is to pay annually in one instalment. There’s an extra surcharge for paying every 6 months or for paying every month by Direct Debit.

Classic cars and Road Tax

Cars registered before 1st January 1978 are classified as classic cars, and are exempt from road tax. You can apply for exemption through the Post Office, and will need your V5C registration document, a valid MOT and proof of insurance.



Conclusion – The future of diesel-powered cars

Until compliance with RDE regulations becomes compulsory for manufacturers, diesel cars will become less and less attractive for British motorists. In this way, you might be able to pick up a second-hand one for a bargain price. Before you do, calculate the increased running costs especially for the VED. Also, think about its future re-sale value. If there are further changes, you might not be able to trade it in.

About the author

Thomas Henderson

Thomas worked as a consultant in personal finance in the UK for 18 years. He has found a passion in sharing his experience on familymoney.co.uk

Thomas also takes pleasure in woodworking, reading and observing stock market trends.

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About The Author

Thomas Henderson

Thomas worked as a consultant in personal finance in the UK for 18 years. He has found a passion in sharing his experience on familymoney.co.uk

Thomas also takes pleasure in woodworking, reading and observing stock market trends.

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