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Taxing times: New VED regime

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A new VED regime will quietly be ushered in on 1 April 2017 and will have a significant impact on some user-choosers. Curtis Hutchinson, editor of Motor Trader, reports.

COMMENT_Curtis Hutchinson_Nov16

“The new rules are politically driven as a means to generate more tax revenue.”

In April the way Vehicle Excise Duty is charged will undergo a radical change but the level of awareness is low even though it will affect company car drivers as well as private owners.

The rules were first announced by George Osborne, back in the days when he was Chancellor, in the 2015 Budget. Surprisingly though the advance publicity of its introduction on 1 April 2017 has been fairy muted.

The new rules are politically driven as a means to generate more tax revenue for the Treasury. Consequently just about everyone will end up paying more in VED for petrol, diesel or hybrid-engined vehicles.

Thankfully the rules are not retrospective and will only be applied to vehicles supplied on or after 1 April.

The new system has two stages. In the first year, tax will be paid solely on the amount of CO2 emitted. After that a flat fee will be applied in subsequent years.

The old system pegged annual VED to emissions calculated across several bands and rewarded drivers opting for cars emitting less than 100g/km with VED exemption. Now drivers of these cars will pay according to their emissions in the first year followed by £140 in subsequent years.

Whether this is a cynical move to target a popular part of the new car market which enjoyed a tax free benefit, or a move to introduce a more egalitarian regime is open to debate. Clearly the Treasury will generate more revenues under this system than before because more cars will qualify for payment.

Under the new rules only pure electric vehicles will be exempt but only if they are priced under £40,000. That’s because all cars above this price point have been singled out for an annual supplement of £310 payable for five years after the first year has been paid.

This means the entire range of Tesla EVs will attract the same road tax as a premium car powered by a high emission 3.0-litre V6 engine and priced over £40,000.

So how will the first year of ownership be charged? The Government has devised 13 tax bands ranging from just £10 for emissions from 1-50 g/km to a whopping £2,000 for cars emitting over 255g/km.

In year two all vehicles costing under £40,000 attract a flat fee of £140, with alternative fuelled vehicles (hybrid, LPG, bioethanol) charged at £130; hardly an incentive for going green.

Since the turn of the year car dealers have raised concerns that customers either don’t know about the rules or are unaware how they will be impacted. According to research carried out by cap hpi the majority of car dealers said car buyers were unaware of the changes.

“Dealers are convinced the consumer is in the dark and that could lead to some very difficult conversations,” said Philip Nothard, retail and consumer editor at cap hpi.

Fortunately the changes are unlikely to impact residual values.
“Longer term residual value forecasts will remain unaffected due to the changes being a small increase in overall running costs of a vehicle. While we may see isolated variances, the changes will have minimal, or even zero influence on a vehicle’s market value,” he said.

The findings are echoed by research carried out by NFDA Trusted Dealers which found over 50% of car buyers were unaware of the changes.
“There is not enough information available to consumers about the changes and how it will affect them in practical terms. The increase in VED will be significant for many drivers, especially those with low emissions vehicles who were previously exempt from the tax,” said Neil Addley, managing director of NFDA Trusted Dealers.

“Buyers of smaller more economical cars will face the biggest tax hike, in some cases paying up to nine times more than they currently do.

“The Government is again asking motorists to dig deep and spend yet more money to get their vehicles on the road, while equally not raising enough awareness about the impending changes, what they will cost motorists, or offering an effective alternative.”

Awareness of the new VED regime remains low and will take some user-choosers by surprise, even those who chose, in good faith, a low emission car for environmental and BiK reasons, and are awaiting delivery from April onwards.

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