RAC Know-How

Road tax for private and company vehicles

Carbon dioxide (CO₂) is a major source of the greenhouse gases that contribute to climate change. In cars, CO₂ is produced when fuel is burnt in the engine and its volume is directly proportional to the amount of fuel burnt. Since road transport accounts for 20% of all CO₂ emissions in the UK, the Government wants motorists to drive more fuel-efficient cars which cause less damage to the environment.

This page explains how Vehicle Excise Duty (VED) and company car tax are structured to favour more fuel-efficient cars and helps drivers understand how these charges impact on their personal motoring costs.

Vehicle Excise Duty (VED)

In 2001 the Government introduced reforms to VED, changing the system for cars registered prior to March 2001 and introducing a new system for all cars registered since March 2001.

For cars registered before 1 March 2001 the system is based on engine size. For cars registered on or after 1 March 2001, VED is based upon a calculation of their CO₂ emissions and their fuel type. The principle behind the system is 'the less a car pollutes, the less you pay'.

The system of bands range from A (lowest CO₂ emissions) to F (highest CO₂ emissions) and from July 2005 have been displayed and colour coded on all new models, thus demonstrating the 'green' credentials of the car in a similar way to the system previously introduced for white goods. For more information visit the Driver Vehicle Licensing Agency (DVLA) website, www.dvla.gov.uk/newved.htm

VED rates and categories are reviewed annually and changes outlined in the Chancellor's Budget. The most recent information is available on the DVLA website under the section 'Vehicle Information', www.dvla.gov.uk/vehicles/vehlicnc.htm

Current rates of VED are listed on forms V149 and V149/1 available from the Post Office, DVLA local offices, or the DVLA website, www.dvla.gov.uk/forms/onlineleaflets.aspx

VED rates can differ depending on fuel used. Alternative fuels, such as Liquid Petroleum Gas (LPG) or Compressed Natural Gas (CNG) tend to be taxed less than petrol or diesel. VED on diesel cars is higher than that on petrol to reflect the fact that while diesels may produce less CO₂, they can emit higher levels of other pollutants, which has a negative impact on air quality. For more information on new car emission figures and fuel consumption, visit the Vehicle Certification Agency's (VCA) website, www.vcacarfueldata.org.uk

Drivers can reduce their own fuel consumption (and thus CO₂) by:

• Keeping the car serviced regularly;
• Gentle acceleration and braking;
• Switching off the vehicle's engine, when stuck in traffic for more than a few minutes;
• Driving off as soon as possible after starting the engine.

Company car taxation

Company car tax is a charge made on individuals where because of their employment a car is made available to them for private use. The old system whereby reductions were granted for higher business mileage, second and older cars, has now been discontinued. Further taxation is incurred if free/subsidised fuel is provided for private use in a company car.

The tax payable is broadly determined by three factors:

• The list price of the car plus any accessories;
• The CO₂ emissions of the car;
• The fuel type of the car.

Generally, the charge is lower for cheaper and more fuel efficient cars. Further information is available on the Inland Revenue website, www.inlandrevenue.gov.uk/cars

For cars with an approved CO₂ emissions figure the taxation is based on a percentage of the car's list price graduated according to CO₂ emissions, building up from 15% of the list price for cars emitting 140g/kms CO₂. The tax increases in 1% steps for every additional 5g/kms over 140g/kms. The maximum charge is 35% of the car's list price. The CO₂ starting benchmark has reduced gradually from year to year.

Diesel cars registered after 1 Jan 1998 are subject to a 3% supplement, up to a maximum charge of 35% if they do not meet the Euro IV emission standard.

For cars without an approved CO₂ emissions figure the taxation is based on engine size. A single scale of charges applies, depending on whether a vehicle is registered before or after 1 January 1998.

Engine size	Tax if registered before 1.1.98	Tax if after 1.1.98
0-1400	15%	15%
1401-2000	22%	25%
2001+	32%	35%

For diesel cars registered after 1 Jan 1998, the same 3% surcharge applies as described for cars with approved CO₂ emission figures.

For cars running on alternative fuels there are discounts available for those registered after 1 Jan 1998. Electric cars attract the minimum charge (15%) less a discount of 6%, equating to a charge of 9%. Hybrid cars running on petrol and electricity, have a discount of 2% and those running on LPG or CNG a discount of 1%. Both hybrid and LPG/CNG have an additional 1% discount for each full 20g/km that the CO₂ emissions figure is below the qualifying minimum charge for that year.

The Inland Revenue website provides a calculator to help individuals calculate the amount of taxation payable, https://online.inlandrevenue.gov.uk

The Lex Vehicle Leasing (LVL) website also provides a calculator and is able to calculate a car's list price using the make and model selected, www.lvl.co.uk/features_taxcalc.php