Vehicle Excise Duty (VED) – also known as vehicle tax, car tax or road tax – is essentially a tax for using a vehicle on public roads.
There’s been a lot of confusion and industry resentment over the government’s plan to increase Vehicle Excise Duty rates for diesels from 2018. Motorists may be concerned about the changes to VED bands and how it will affect them and their choice of car. Here’s a brief outline of the changes coming into effect:
Back in April 2017 the Government introduced a new set of vehicle excise duty (VED) bands, affecting all new car buyers. The new rates brought about higher first-year fees for all cars, plus replaced subsequent rates with a blanket £140 fee. Only electric and other zero-emissions cars are now tax-exempt, with diesel and petrol cars on average costlier to tax.
In November 2017, the Autumn Budget, the Government announced further changes to the VED rates, with buyers of all new DIESEL cars registered from 1st April 2018 facing higher rates if their cars do not meet the current Euro 6 emissions standards in both laboratory and real-world emission tests.
The increase ONLY applies to first-year VED rates, the subsequent set annual rate of £140 will not be changed. This means that unless you are the first registered keeper of a vehicle, you will not be affected.
Essentially, new diesel cars that fail to meet the newly introduced Real Driving Emissions Step 2 (RDE2) standards will have their first-year VED rate pushed up a band.
Given that RDE2 testing is more rigorous than Euro 6 and isn’t set to become the industry standard until 2020, many have called the government plans unfair. It would appear certain cars will be punished for not conforming to a 2020 regulation from April 2018!
The changes only apply to new diesel cars, not vans, and do not impact the subsequent £140 yearly fees all cars have to pay after the first year. The table below shows how the new rates will work. Any car failing to meet the Euro 6 standars in real world testing would move up a band, and thus pay anything from £15 to £500 more in first year rates.
|CO2 (g/km)||Pre April 2018 first year VED rate||Post April first year VED rate
(for diesels not meeting real-world Euro 6 standards)
|1 - 50||£10||£25|
|51 - 75||£25||£100|
|76 - 90||£100||£120|
|91 - 100||£120||£140|
|101 - 110||£140||£160|
|111 - 130||£160||£200|
|131 - 150||£200||£500|
|151 - 170||£500||£800|
|171 - 190||£800||£1,200|
|191 - 225||£1,200||£1,700|
|226 - 255||£1,700||£2,000|
New cars will have to meet the real driving emissions (RDE) step 2 test that forms part of the current EU type approval process. This means new cars can pollute up to 1.5 times the current 80mg/km NOx limit under real-world driving if they are to avoid going up a tax band.
According to the Treasury's estimates, less than two million cars will be subject to the VED band jump, though cars like the Ford Fiesta are expected to see a £20 rise in the first-year VED rates. Higher polluting models, like the Porsche Cayenne are expected to see their first year rates go up by £500.
Why has the Government turned against diesels?
Diesel-engined cars were promoted by successive UK governments for more than a decade because they have, on average, 20% lower CO2 emissions and 20% better official fuel economy than their petrol counterparts. These are important factors in helping to tackle climate change. Drivers appreciated the lower road tax (Vehicle excise Duty) and company car tax that were applied to diesels and their popularity grew. Today, there are more than 10 million diesel cars on the UK's roads.
However, the Government now needs to address the levels of pollution in our towns and cities because it is being sued by the European Commission for repeatedly breaching air pollution limits. The Government's announcement of the ban on petrol and diesel-engined cars from 2040 is part of a £3 billion plan to tackle air pollution in response to the legal action.
Will the new 2018 car tax changes affect my current car leasing agreement?
Luckily, no it won't, these new changes will only affect vehicles registered on or after 1st April 2018. If you're thinking about a new lease deal right now, you'll find that most of our pricing is based on registration prior to the new VED increase so if you take delivery of a car in March on the new registration you will not need to take this into consideration.
Please contact our friendly team for further details if you need any further information for a leasing contract commencing from 1st April onwards.