Rather like insurance and servicing, car tax is one of the necessary evils of driving. And from April 2017, the car tax rules change. As that date moves nearer, we’re going to hear a lot about the alterations. But what does it mean for the vast majority of us? The good news is those changes won’t affect drivers of cars registered before 2017. The bad news is that going forwards, owners of efficient small cars will be hit in the pocket – hard.
How car tax works currently
At the moment, car tax is decided according to the car’s exhaust emissions. Cars that pump out fewer than 100g/km of carbon dioxide pay nothing. Those at the most expensive end of the scale, giving out more than 255g/km of CO2, pay £515 a year. In between, cars fall into one of 13 groups with annual costs becoming more expensive the ‘dirtier’ your car becomes.
How the car tax rules change will work
Any car registered from April 2017 will play a flat £140-a-year fee. Cars that cost more than £40,000 will attract an extra £310 a year for the first five years of their life.
Who will this affect?
Drivers of small and efficient cars will be hit the hardest. Owners of Britain’s best-selling car, the Ford Fiesta will currently pay nothing if they own the popular 1.0-litre turbo or 1.5 TDCi models. Anyone who buys those cars new from April 2017 onwards will pay £140 a year. The change will not affect drivers of cars registered between March 2001 and April 2017. However, if those drivers choose to buy a new, replacement model, they could well experience an unwelcome increase in the cost of car tax.
Edmund King, President of the AA, said: “It seems counter-intuitive that ultra-low emission vehicles could cost more to tax than gas-guzzling cars.” He also questioned whether the changes send out the right message to encourage greener motoring.
Will it benefit anyone?
The government’s treasury will be the biggest winner. Currently, it’s estimated that a quarter of the 2.5 million cars sold in the UK don’t pay car tax. This is because the government brought in a low tax threshold to encourage car makers to make more eco-friendly models.
The car companies responded by building an increasing number of cars clean enough to fall below that limit. Even executive models such as the Audi A4 are now below that 100g/km £0 threshold.
The changes follow the government increasing insurance premium tax by 10 per cent, which will hit all drivers’ car insurance renewal costs. Hugh Edwards, Director General of the Association of British Insurers, said: “The increase is a raid on the responsible, taking advantage of those who already do the most to avoid becoming a burden on the state.”
Will any owners benefit from new car tax rules?
Drivers who buy the most polluting cars will actually benefit from the new tax rules in the long run. Initially they will take a hit: the one-off tax for buying a car that emits more than 255g/km will be £2000. And as this car will probably cost more than £40,000 there will be the £310 annual supplement. But after five years, tax will be just £140. It means that over 10 years, they will actually be in pocket, compared with the current system.
What will it mean to sales?
Car dealers are bracing themselves for a rush of car buyers in February and March 2017 as drivers buy low emissions cars that will retain the old zero tax threshold. Going forwards, it means there is likely to be a glut of used cars coming onto the market that were first registered in early 2017.
Are we right calling it car tax?
It’s got many names and one of the most popular is road tax. That’s because this tax was originally brought in to pay for the roads. However, if we’re being totally accurate, road tax was abolished in 1937 and replaced with Vehicle Excise Duty or the car tax we’re more used to these days. That money goes into a central fund and only a fraction actually goes towards the upkeep of the roads.