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*|
|* 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.