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2017 VED rates: The new car tax changes and bands explained

A shake-up to the Vehicle Excise Duty AKA car tax is happening in 2017. Here is how much it will cost you, when it comes into force, what cars will be exempt and a look at the new VED bands.

One of the many costs of motoring in the UK is car tax, which gets its colloquial name from the fact it was once collected and used for maintaining roads.

Nowadays road repair money comes from general and local taxation, which means even cyclists contribute. Unless homeless, of course. Road tax was actually stopped in 1936 (by Winston Churchill, no less) and the government had started raiding the 'Road Fund' piggybank years before.

The Driver and Vehicle Licensing Agency (DVLA) prefers to call it a 'vehicle tax', even though just about everyone else still uses car tax or road tax.

Whatever name you prefer, the important constant is the fact anyone with a car may have to contribute. What has changed is exactly how much you pay (if anything), which is where our 2017 VED rates guide comes into play.

2017 VED rates: So what has changed?

While the banding system is the same as before, with a car's CO2 emissions output determining what you pay in the first year, the VED band letters A to M have been removed. Instead you only have the CO2 figure, ranging from 0 to over 255g/km (more on the specifics later).

The same sub-division of vehicles has also been maintained. You have petrol and diesels, classed as TC48 and TC49, respectively, and 'alternative fuel cars' classed as TC59. Gov.uk includes hybrids, bi-ethanol and liquid petroleum gas in the TC59 column. This distinction governs the cost after the first year.

Another difference is the inability to make a six-month payment for the first year. You will have to pay full whack before you can consider spreading the cost.

2017 VED rates: How much will I have to pay?

Unless your car emits between 1 and 50g/km of CO2 and is classed as an alternative fuel car (electric, hybrid, LPG or plug-in hybrid) or emits 0g/km in the case of an all-electric car, you will have to pay a minimum of £10 up front. Basically, the more polluting your new car, the more you have to pay in the first year.

All alternative fuel cars over the 51g/km threshold will cost £10 less than the comparitive petrol or diesel in the first year. For example, it costs £100 a year to tax a car between 76 and 90g/km, compared with £90 for an alternative fuel car in the same emissions bracket.

After the first year, alternative fuel cars will pay £130 and diesel and petrol cars will cost £140 every year. Electric cars will cost nothing.

2017 VED rates: Hybrid and electric cars are being taxed more?

The most polluting ones, yes, which is an obvious move given that a decrease in fuel consumption means lower revenues for the government. The slack has to be picked up elsewhere, hey?

So a portion of the sub-100g/km club, previously exempt from paying a dime, will now cost as much as £110 in the first year if bought new after the cut-off date (see below) then £130 thereafter. So it may be worth buying that Nissan Leaf or BMW i3 sooner rather than later.

Expect to see some sort of tax on electric and hybrid car charging in years to come as the adoption rate picks up and eco-car numbers represent a more significant proportion of all cars in the UK.

2017 VED rates: Will that affect eco-car adoption?

Admittedly, a mere £10 a year is pittance if you can afford the higher asking price of a hybrid, plug-in hybrid or fully electric car. But then any damage done to reducing the reliance on fossil fuels will be an expensive problem in the long run, especially as air pollution is said to be killing millions of people worldwide.

Ignoring all-electris such as the BMW i3 (without the optional range extender motor), there are relatively few alternative fuel cars that sneak in under that 50g/km threshold. The Audi A3 e-tron is one, the Kia Optima PHEV is another. You could also get the Volvo XC90 T8 if you want a seven-seater SUV.

2017 VED rates: So how can the government justify it?

Just because a vehicle is clean at a local level (i.e. when standing next to the car's exhaust), CO2 is created in the making of every car. Every part needs to be manufactured and that puts more than just CO2 in the sky, so you could argue all vehicles should pay their fair share.

With that said, the £310-a-year supplement on pricier cars does seem like a stealth tax on nice things. Is it really fair that those on higher incomes pay more than anyone else when their car isn't necessarily any more polluting? We shall let you decide.

2017 VED rates: What about older cars?

Nothing changes, which is good news if you already own an eco-friendly car. But bad news for anyone with lungs because drivers will undoubtedly be keen to run their aging four-wheelers for longer. That is one theory, anyway.

2017 VED rates: The old tax band tables

2017 VED rates: The new tax band table

2017 VED tax bands

2017 VED rates: Example cars

A Tesla Model S costs more than £40,000 from the outset and so it is hit by the full whack of a new £310-a-year supplement for five years. But it avoids any payment beyond that because of the 0g/km CO2 rating.

The new Ford Mustang V8 with extras easily breaks the £40,000 threshold and it has a CO2 emissions rating of 299g/km. That means you pay a first year rate of £2,000, plus the £310 supplement and £140 flat rate for five years. Total: £4,250.

The old rate would have cost a V8 Mustang owner a first year rate of £1,120 plus £515 a year, making a total of £3,695 – a difference of £555 versus the old system over the same time period. That means in the sixth year of ownership you are paying £140 a year, instead of £515 (a saving of £375 before you factor in the initial £310 supplement if applicable).

Therefore cars with high CO2 outputs work out cheaper with the new system if you plan to keep them for a long time, especially if below the £40,000 threshold.

A Hyundai Ioniq will cost £90 for the first year, whereas anything sub-100g/km of CO2 originally avoided costing anything. That is £1,390 over a decade – a big increase, indeed.

All eco cars besides those that are fully electric will end up costing more to run, then, so you may want to take the plunge before the cut-off date to avoid the £130-a-year rate.

2017 VED rates: Will they affect used car prices?

Without first-hand proof, we cannot say. But there is a chance a hybrid or plug-in hybrid car that costs more to run will prove less attractive to prospective buyers further down the road.

That could be bad news for those who want to sell on their gas-guzzler. But good news for the buyer who may find more exotic cars in their price range.

2017 VED rates: So when do they come into force?

April the 1st, 2017, but sadly this is no April Fool joke. Former chancellor George Osborne was the brainchild of the new VED rates (revised on the 8th of July, 2016).

Bear in mind the 2017 VED rates only apply to a car registered on or after April the 1st, 2017. Any vehicle registered before that date will use the old VED bands (or if registered before the 1st of March, 2001, the even older system).

That means you should consider if there is a waiting list on the vehicle you want. Or perhaps use the potentially higher cost of motoring as a bargaining chip at the dealers.

2017 VED rates: What about a tax disc?

The tax disc was abolished in October 2014, everything is digital now. Read our guide to the new digital tax disc for more details.

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