The 2017 car tax changes explained

From next month, the way that vehicle tax is calculated will change, affecting all of us with vehicles registered with the DVLA from 1 April 2017.

Vehicle tax for the first year will be based on CO2 emissions and after that the amount of tax that needs to be paid will depend on the type of vehicle. Unlike the current system, in which low-emission vehicles and petrol cars are exempt, the new Vehicle Excise Duty (VED) will only be free for vehicles with no tailpipe emissions (electric and hydrogen cars only).

These new regulations will mean that all new cars will face a significant increase in their tax demands during the first year of registration and from their second year onwards a flat rate will apply. The rates for this are as follows:

£140 a year for petrol and diesel vehicles.
£130 a year for alternative fuel vehicles (hybrids, bioethanol and LPG).
£0 a year for vehicles with zero CO2 emissions.

For new vehicles with a list price of more than £40,000 – including zero emission cars – an additional supplement of £310 will be payable per year for the next five years. At the end of this period, the standard rate will apply. Although you may be able to negotiate the price down to a figure below £40,000 the government will use the published list price so you won’t be exempt from the £310 fee.

If you register your new car by 31st March 2017 the updated road tax rate won’t apply as the reform will only affect vehicles registered from 1 April 2017.

Those driving more polluting cars will pay a much higher tax in the first year, but lower tax in subsequent years – so eventually will break even.

If you are in the market for a new car, it is worth completing the calculations to work out whether you are better off bringing the purchase forward to before April 1 so you can benefit from current system, or wait until next month to take advantage of the new one.

If you are looking to buy a low-emission car or an expensive vehicle it may make sense to bring the purchase forward because in most cases, the current tax system will work out to be more cost-effective. If you cannot buy your low-emissions car before April, then when you eventually do buy, it’s worth considering a nearly-new car, which will continue to be taxed under the old system.