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VED changes to take effect on April 1; now is a great time to buy a hybrid!

Sat 25 February 2017 | Back to news list

This month is a good one to buy a hybrid electric vehicle because from April 1, changes in Vehicle Excise Duty (VED) announced last year will come into effect and increase the tax rate on hybrids. Zero emission vehicles will qualify for the lowest VED band and remain tax free.

The changes - announced last summer by former Chancellor George Osborne - take effect on all cars registered from 1 April 2017 onwards. First year rates of VED will vary according to the carbon dioxide emissions of the vehicle. A flat standard rate (SR) of £140 will apply in all subsequent years, except for zero emission cars (mainly pure battery electrics) which will pay nothing. Cars with a list price in excess of £40,000 will incur a supplement of £310 on their standard rate for the first five years in which the SR is paid. All cars registered before 1 April 2017 will remain in the current VED system, so will not change.

From April 1, new cars will still be divided into 13 different CO2 bands, which will determine how much drivers will pay in the first year of ownership.

From the second year onwards, zero-emission vehicles that cost less than £40,000 new remain tax-free, while a flat rate of £140 a year will be payable for all petrol, diesel and hybrid cars that cost less than £40,000. Cars that cost more than £40,000 attract an additional 'Premium' fee of £310 for years two to five of ownership, regardless of their emissions.

Under the current VED system, tax is determined solely by CO2 emissions, with the value of the car not taken into account. Cars that emit up to 100g/km of CO2 attract no tax at all, and cars that emit between 101-120g/km of CO2 attract only small amounts. It's not until you get to 121g/km of CO2 that car tax rates ramp up.

If you buy your car before 1 April 2017, you won't be affected by these changes because they only apply to cars registered on or after that date. Car tax will continue to be calculated using the old system of CO2 emissions. 

The LowCVP still hopes that the new chancellor will rethink VED to enhance the taxation benefits for low carbon vehicles and is working on proposals for a new approach to coincide with new testing processes. LowCVP members of the working groups can help shape this important policy area.

In related developments, there have been widely publicised calls for the Chancellor to introduce changes in the Spring Budget to VED (and, potentially, other tax mechanisms) designed to limit the purchase of diesel cars which are seen as contributing to air quality problems in Britain's cities. 

A group of medical professionals, environmental campaigners and lawyers has written to the Chancellor ahead of the budget to demand a change to the VED that they say "subsidises diesel cars". 

Some of the calls have focused on applying an additional first year VED surcharge for diesel cars.

The Transport Secretary, Chris Grayling, (reported by the Daily Mail) said that: "People should take a long, hard think about what they need, about where they're going to be driving, and should make best endeavours to buy the least polluting vehicle they can.

"I don't think diesel is going to disappear but someone who is buying a car to drive around a busy city may think about buying a low-emission vehicle rather than a diesel."

The Budget will be delivered on March 8.

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