Changes to Vehicle Excise Duty

Currently, the CO2 emissions level below which Vehicle Excise Duty (VED) is due for a car is 100g/km. New cars in their first year are not subject to VED if their emissions are below 130g/km.

The nil rate threshold was introduced in 2003 when average new car CO2 emissions were 173g/km. Since then, to meet EU emissions targets, average new car emissions have fallen to 125g/km and an increasingly large number of ordinary cars now fall into the lower-rated bands.

A new VED banding system will be introduced for cars registered on or after 1 April 2017.

First year rates (FYRs) will vary according to the CO2 emissions of the vehicle. There will be a flat standard rate (SR) of £140 for all cars except those with emissions of 0g/km, for which the standard rate will be £0.

In addition, cars with a list price above £40,000 will attract a supplement of £310 per year for the first 5 years in which the standard rate is paid.

The new rates and bands are set out below.

CO2 emissions (g/km) First year rate Standard rate*
0 £0 £0
1-50 £10 £140
51-75 £25 £140
76-90 £100 £140
91-100 £120 £140
101-110 £140 £140
110-130 £160 £140
131-150 £200 £140
151-170 £500 £140
171-190 £800 £140
191-225 £1200 £140
226-255 £1700 £140
Over 255 £2000 £140
* cars with a list price of over £40,000 when new pay a supplement of £310 per year on top of the standard rate, for five years.

The obvious parties affected are those purchasing new cars, who will be required to pay VED on their new cars.  However this change could have a wider impact: dealers and manufacturers who have factored zero VED into their sales strategies should consider their calculations – though they will have until 1 April 2017 to make adjustments.