April 2017 new car tax rules explained

April 2017 new car tax rules explained
From 1 April 2017, there will be significant changes to car tax for new vehicles in the UK.

Many drivers looking for a new car this year – especially those in the market for an economical supermini, hatchback or hybrid – are likely to discover they’ll be paying more than before. But what are the changes and how will they affect you?

Our guide breaks down this topic into easy-to-digest sections informing you of the changes that may affect your driving.

Guide contents

What are the car tax changes in 2017?

From the 1st of April 2017, the following changes will be made to Vehicle Excise Duty (car tax) and will only affect vehicles registered after this date. 

Under the current system, Vehicle Excise Duty (VED) is split into 13 bands, ranging from A to M. In short, the higher the CO2 emissions, the more road tax you’ll pay, while cars that emit less than 100g/km of CO2 (only electric cars) are exempt from any tax.

The first year’s VED will still be calculated on a vehicle’s CO2 emissions, but only cars with 0g/km CO2 emissions – electric and hydrogen vehicles – will be exempt from paying tax.

Other cars will be subject to a variable first-year rate: from £10 to cars emitting 1-50g/km CO2, to £2000 for those emitting over 255g/km CO2 (see the full table below).

From the second year, zero-emission cars remain exempt, while all other vehicles move to a standard £140 flat rate, regardless of CO2 emissions.

However, all new vehicles with a list price of over £40,000 – including zero emission cars – will attract an additional rate of £310, payable each year for five years from the end of the first vehicle licence. At the end of the five-year period, the standard rate will apply.

These changes are in addition to the 2104 car tax change which saw the abolition of the tax disc.

50% off Breakdown Cover Sale

50% off Breakdown Cover Sale

Get covered in our half price Breakdown Cover sale from just £7.38 a month.* We're the UK’s best breakdown provider as voted by Auto Express drivers 2021.

50% off Breakdown Cover Sale

A brief summary of the changes

  • At present, the rates are annual based upon CO2 emissions. A £10 discount rate does currently apply to Alternative Fuelled vehicles
  • From April, there will be a first year rate (based on CO2 emissions) ranging from £0 for electric vehicles up to £2000 for vehicles emitting more than 255 g/km of CO2
  • From year 2: 3 rates (Standard, Alternative Fuel and Electric)
  • Year 2 rates are £140 (Standard) £130 for Alternative Fuel and £0 for Zero Emission Vehicles – Electric
  • If the car has a list price of over £40,000, it will pay a supplement of £310 on top of whatever rate applies from year 2. This supplement is for 5 years. For example, a high-end electric will pay £0 for year 1, and then £310 for the next 5 years

What does that mean in the real world?

Here are two real-world examples:

  1. A popular new fiesta, for example, which emits 99g/km CO2, will pay a first year rate of £120, followed by a standard £140 a year. At present, it pays ZERO. Over 3 years, this means an owner will pay £400 more over 3 years from April.
  2. A uber gas-guzzling model which emits more than 255 g/km CO2 will pay £2000 as a first year rate, before reverting to £140 a year standard rate from year 2. However, if it has a list price of over £40,000, it will pay £2,000 for year 1, followed by £450 for years 2 – 6, and then reverts back to £140 a year.

Many are likely to find this year's new more complex system very confusing, however, our table below should clarify.

MORE ADVICE: The best electric cars of 2017

When are these changes coming into effect and why?

The changes come into effect from 1 April 2017 and have been introduced following an announcement by former Chancellor of the Exchequer George Osborne in the summer of 2015.

The new rates are in direct response to falling CO2 emissions levels, meaning many motorists are paying little or no VED.

This has cost the Treasury millions of pounds in lost revenue, prompting the government to make the changes.

What are the VED tax bands from April 2017 onwards?

CO2 emissions (g/km)First year rateStandard rate*
1 - 50£10£140
51 - 75£25£140
76 - 90£100£140
91 - 100£120£140
101 - 110£140£140
111 - 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 an additional rate of £310 per year on top of the standard rate, for five years.

How will the changes affect me?

How the changes affect you depends on the type of car you are buying. If you’re looking at an electric vehicle costing under £40,000, you’ll pay no road tax. Buy an economical supermini or hybrid vehicle and the chances are you’ll be worse off.

If you’re buying a car with a list price of over £40,000 you’ll pay an additional £310 per year for five years. It’s worth noting that this list price is after any options and accessories have been added.

And although you might 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.

READ MORE: What is a VIN number check and why is it important?

How will the changes affect buying habits: winners and losers from the change

If you’re buying one of the many city cars, superminis and hybrids with CO2 emissions less than 100g/km, you’ll pay between £10 and £120 in the first year. If you had bought the same car before April 2017, you’d have paid nothing at all.

Owners of low emission vehicles are likely to be the hardest hit. For example, if you buy a sub 100g/km car before April 2017, you’ll enjoy free road tax for life. Under the new scheme, you’ll pay anything up to £120 in the first year and £140 for each year thereafter.

Similarly, buy a car with CO2 emissions between 101 and 110g/km and, under the old system, you’d pay nothing in year one and £20 for each subsequent year. From April 2017, you’ll pay £140 in year one and then £140 from year two. That’s a big difference.

At the opposite end of the spectrum, the £2000 rate for CO2 emissions over 255g/km might look like a hard pill to swallow.

But while you’d currently pay £1,120 in the first year and £515 the years after, under the new system you’ll move to the same flat rate as a car emitting just 1/gkm CO2. Depending on how long you keep the car, you might be better off - unless the vehicle is over £40,000

What do the tax changes mean for cars already registered?

Tax rates for vehicles registered before 1 April 2017 will not be affected by this change. It’s for this reason that many motorists are keen to buy a new car before the end of March 2017.

READ NEXT: To find out what VED is and why we pay it read our complete guide to car tax bands


Visit our car-buying advice section

*New, single personal based cover from £7.38 a month. Max 50% saving with Unlimited cover. Ends 01/06/22, 7am.