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2018 Road tax changes – how to tax a new car

A new system of Vehicle Excise Duty (VED – often referred to as car tax or road tax) came into force at the beginning of April this year, just 12 months after the last major revamp of the system.

However, whereas the changes in 2017 applied to every new car registered from then on, this year’s changes apply only to new diesel cars and mean that diesel cars will become slightly more expensive to run.

So, what has changed with VED this time?

To calculate the VED for each vehicle, every model is placed in a band, depending on its CO2 emissions. The changes (which were announced in last year’s Autumn Budget) mean that, since the beginning of this month, the VED liability of new diesel cars went up by one band over where they would have been in the last year. At the same time, the surcharge on Benefit in Kind tax for company car drivers in a diesel car rose from 3 to 4 per cent.

In theory, there is an exemption – for cars that meet the standards of the forthcoming Real Driving Emissions 2 emissions-testing system – but no current cars meet that standard, which is only due to become compulsory in two years’ time. So, the revised bands will apply to every new diesel car registered from April 1 2018.

However, what hasn’t changed is the basic principle of the system: after a first-year rate of VED that depends on the car’s CO2 emissions, the subsequent years are charged at a flat rate.

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If I’m buying a new diesel car, how much extra will it cost?

The cost will vary in line with a car’s CO2 emissions: the higher the emissions, the more it will cost. A diesel car like the Ford Focus with CO2 emissions of 99g/km costs an extra £25 in VED in the first year – up from £120 to £145 – while the VED for a car like the BMW 5 Series Touring that emits 144g/km will go up by more than £300, from £200 to £515.

For more examples of the changes, see the table below:

Car CO2 emissions 2017-18 VED 2018-19 VED
Ford Fiesta 1.5 TDCi 75PS 84 £100 £125
Volkswagen Golf 1.6 TDI 115PS 109 £140 £165
BMW 320d 122 £160 £205
Nissan Qashqai 1.6 dCi 130PS 116 £160 £205
Mercedes E350d 162 £500 £830
Audi Q5 2.0 TDI quattro 132 £200 £515
Range Rover 4.4 SDV8 219 £1200 £1760

Do the changes apply to every diesel vehicle?

No, the new system doesn’t apply to vans or commercial vehicles, which are taxed under a different system. Also, it only applies to new diesel cars registered after April 1st 2018. All other existing cars will continue to be taxed under the system that was in place when they were first registered.

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Why is the system changing again?

According to the government, the changes are intended to encourage drivers into cleaner cars, as well as to raise extra money, which will be spent on improving the UK’s air quality. Their estimates say that the change will generate £125 million over the next year, and a further £50 million the year after.

How did the VED system change in 2017?

The latest revisions to the VED system follow a more major change that was introduced in April 2017. Under this system, and in contrast to the previous regime, only zero-emission cars were excluded from VED. For all other cars, after a first year’s CO2-related charge, they all incur a flat rate of £140 per year (£130 for hybrids), and all cars that cost over £40,000 when new (with options, but regardless of their emissions) pay a £310 supplement for five years.

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Will things be changing again soon?

There is likely to be a further increase in the cost of VED for all new cars in September – not because the tax bands or rates are changing, but because of a change in the way cars are tested to produce the CO2 emissions figures that dictate the rate at which tax is charged.

Previously, cars have been tested under the New European Driving Cycle (NEDC), but a new test cycle – the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) – is being introduced. The intention is that this will produce fuel economy and emissions figures that are more representative of everyday use and encourage car makers to produce more economical cars.

Since September last year, all new cars introduced on to the market for the first time have been tested under the WLTP system, but from September 2018, all new cars will have to be tested under the new system.

However, to confuse matters, until April 2020, tax and VED rates will continue to be calculated from the old NEDC results. That means that the new WLTP results will have to be ‘back-translated’ into NEDC figures and these are expected to be slightly higher than the current values, leading to another increase in VED.

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