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Budget hides a car tax hike to strike in April: VED to rise in line with inflation in 2019 – and some motorists will be stung for extra £65

By on November 1st, 2018

  • VED rates for cars, vans and motorcycles to increase in line with RPI from 1 April, as announced back in 2017
  • Most drivers of cars registered before 1 April 2017 will have to pay an extra £5 in standard rate VED annually, while some will have to fork out an additional £15
  • Standard rate tax (paid from the second year) for cars bought after 1 April 2017 will increase by £5 
  • Anyone who buys a new model after 1 April 2019 could be stung with an extra £65 in first year VED

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Car tax costs are set to go up after it was confirmed in the Budget that another rise in Vehicle and Excise Duty (VED) will take effect from next year.

The little-known plan to steadily hike car tax was included in last year’s Autumn statement, which said that VED would increase in line with inflation in April 2018 and April 2019 for all cars – not just new models.

Buried in yesterday’s Budget small print, the document confirmed: ‘From 1 April 2019 VED rates for cars, vans and motorcycles will increase in line with RPI.’

For most drivers, annual car tax costs will increase by £5. The most significant rise for existing owners is for those with older – high emissions – models, who will be charged up to an additional £15, while new car buyers could be hit for an extra £65 on first-year car tax.

During the Budget statement, Mr Hammond announced that £28.8billion in funds raised from VED would be ring-fenced to pay for upgrades and maintenance to England’s motorways and major roads between 2020 and 2025.

It’s the first time VED tax paid by motorists will be solely used for the roads network.

While ministers promised that this would improve safety and reduce congestion, nothing was made of the fact that the tax would be increasing from 1 April 2019 in Hammond’s speech in the House of Commons.

The hike to car tax was instead hidden in the official Budget document.

In fact, the rise in line with RPI was put in place in the 2017 Autumn budget, despite the government’s declaration that it was moving away from the indexation in favour of CPI.

Ministers said the increase in car tax by RPI in 2018 to 2019 would ‘ensure that VED receipts are maintained in real terms and that motorists continue to make a fair contribution to the public finances’.

The new rates for VED from 1 April 2019 were clarified in the Overview of Tax Legislation and Rates document released by the government.

For buyers of new cars, first year VED rates could rise by as much as £65 for vehicles with high CO2 emissions over 255g/km.

Diesel cars that fail to meet the RDE2 emissions standard that isn’t introduced until 2020 will continue to have to pay a higher rate of tax, as first established from April this year.

Even the most economical petrol, diesel and hybrid cars will suffer a £5 first rate VED rise, while those producing over 150g/km CO2 will be stung with extra annual costs from £15.

Cars registered after 2017 will also have to pay a higher standard rate of VED.

The fixed standard rate (paid from the second year onwards) will increase from £140 to £145 for petrol and diesel models, with hybrids rising from £130 to £135, it was revealed.

But the hike doesn’t just hit owners of new and relatively new cars.

If your car was registered between 2001 and 2017 you will also have to pay more VED from next year.

Only those who have efficient vehicles producing less than 120g/km CO2 won’t have to pay any extra.

For most, it is likely to result in a car tax increase of between £5 and £15 depending on the emissions output of their vehicle (see table below).

Electric cars owners will continue to avoid VED charges.

No information was provided regarding a rise in VED for vehicles registered before March 1 2001.

Third VED rate adjustment in as many years

In April 2017, the government reformed the rates motorists would need to pay in car tax on new models.

First-year tax rates were updated to range from £0 for zero-emissions vehicles to £2,000 for the most polluting cars that emitted 255g/km CO2 or more.

More significantly a standard rate tax to be paid from the second year was changed to £140 for all petrol and diesel powered vehicles, meaning a substantial increase in costs for those who purchased low CO2 producing petrol and diesel models.

Pure electric cars remained free to tax at the standard rate, while buyers of new hybrids would be charged £130 annually from the second year.

Previously, all green cars that emitted less than 100g/km of CO2 paid no car tax.

Those that produced more than the 100g/km of CO2 threshold were charged an escalating amount based on the emissions output of the car.

The 2017 rules also introduced a premium tax on all vehicles that costs more than £40,000.

Anyone who bought a car worth more than £40,000 – even if it is a pure electric vehicle – was walloped with an additional £310 standard rate tax for five years.

This has subsequently been increased for petrol and diesel cars to £450 a year for five years and £440 for hybrids.

More changes were then introduced in April this year as part of government efforts to get drivers to ditch diesel.

Those who purchased diesel-powered cars that failed to meet the ‘Real Driving Emissions 2 standard’ – which isn’t introduced until 2020 and therefore can’t be achieved for another two years – were forced to pay a first-year tax rate one level higher than the vehicle’s emissions dictated in a bid to encourage motorists to purchase petrol, hybrid or electric cars instead.

While the new rates from April 2019 will be increased in line with inflation for cars, motorbikes and vans, it will be increased for HGVs, it was confirmed.

‘To support the haulage sector, the government will freeze the Heavy Goods Vehicle VED for 2019-20’, the document stated.

Motorists are also likely to face more changes to VED a year later in 2020.

In February, the Department for Transport proposed that car tax bands for new vehicles should be adjusted in 2020 to align with the new vehicle emissions test that has been compulsory for manufacturers since September last year.

The World Harmonised Light vehicles Test Procedure (WLTP) was introduced to better represent the real-world fuel economy of brand new cars and how much pollution they emit when being driven on the road.

From 1 January 2019, the Government will demand that all car sellers use the new test figures on their websites, advertisements and specifications for new vehicles.

‘This will not apply to vehicles without WLTP testing figures, although there will be very few of these by this date,’ the DfT report said earlier this year.

‘All consumer information including government and third party publications should also use these official figures from this date,’ it added.

The Budget document said it will review the the impact of WLTP on Vehicle Excise Duty and company car tax and report on the issue in the spring.

More vehicle tax changes confirmed in the Budget document:

  • Alternative fuels – Following review, the government will maintain the difference between alternative and main road fuel duty rates until 2032 to support the de-carbonisation of the UK transport sector, subject to review in 2024.
  • Vehicle Excise Duty (VED): Vans – The government will shortly publish a summary of responses from the consultation on VED reform for vans, published in May 2018. The response will set out proposals to introduce environmental incentives from April 2021. Bands and rates will be set out ahead of Finance Bill 2019-20.
  • Vehicle Excise Duty (VED): Blood Bikes – To align the tax treatment of the transportation of blood and medical supplies by the national charity Blood Bikes with other emergency vehicles, the government will introduce an exemption for the purpose-built vehicles operated by Blood Bikes from April 2020.
  • Company vehicles – From 6 April 2019 fuel benefit charges will increase in line with RPI and the van benefit charge will increase in line with CPI.

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