Vehicle Excise Duty Changes: How To Get Your New Vehicle and Save Substantially On Tax

 Published 13th January 2017
HMRC / Tax 

The way in which Vehicle Excise Duty (VED) will be calculated for new vehicles first registered on or after 1st April 2017 will change following the 2016 budget announcement. For some vehicles this could see the running cost increase substantially and this article aims to make you aware of how you can order a new vehicle soon and pay VED at the existing rates for the length of your lease. This particularly applies to those of you who are looking to lease a new vehicle this year but are not sure how the changes are going to affect you. To assist we have put together a helpful guide about the changes that will be coming into effect.

What is Vehicle Excise Duty?

Vehicle Excise Duty is a tax that is levied by the Government and all vehicles are subject to the duty if they are used on public roads in the UK. In 2015, George Osborne, the then-chancellor announced in his budget that a new road fund would be set up. This is because under the current VED scheme, a higher proportion of new vehicles were paying little to no tax due to their falling C02 emissions and in fact costing the Treasury millions of pounds to maintain the UK's road system.

What are the 2017 VED changes?

From 1st April 2017, tax on new vehicles registered on or after will be calculated in two ways. In the first year of driving a new vehicle, road tax will be based on CO2 emissions and will be split into 13 bands. The government are keen to get more people into hybrid and electric vehicles and therefore zero-emission (zero CO2) vehicles will be exempt from paying tax.

From the second year onwards, road tax will be mainly based on the cost of your vehicle. Vehicles that are worth below £40,000 and emit zero-emissions will not pay tax. Diesel, petrol and hybrid vehicles that are worth below £40,000 will cost £140 per year to tax. Vehicles that are worth £40,000 plus will be charged a premium fee of £310 per year up until six years of age.

For more information about the C02 bands and the new VED charges, please visit the government website here: GOV.UK Vehicle tax rate tables

How will the VED changes affect leasing?

The short answer is that the changes will affect all new vehicles so leasing is no different to outright purchase in respect of VED. For the majority of popular UK vehilces the impact will be a small increase in cost or rental. Some of the low CO2 emission vehicles and also higher value vehicles will see a larger increase within the monthly rental that will reflect the new duty.

With regards to the Finance Companies, they will not be able to swallow the cost of these government changes so they will have to pass this into the finance rental. If you have had a quote, it is important to understand if it is based on current or new VED rates. It will be very hard to predict when a new vehicle will be registered, particularly for factory orders so all customers must be aware that there could be additional costs if the vehicle is registered on or after 1st April 2017.

For private individuals it will mean customers will be more aware of the CO2 implications for VED and therefore it might impact their vehicle choice. For businesses it may mean changes to their company fleet policies and in turn this will likely change the vehicles they take on fleet.

From a manufacturer perspective they are working hard to reduce CO2 emissions and we will see this continue going forward. The final and most important point is that customers who are in the market for a new vehicle may look to take a stock vehicle ASAP to ensure the vehicle is registered before the end of March 2017. This will lock the vehicle into current VED rates thus avoiding any potential increases.

I currently have a vehicle on lease. Will the changes affect me?

The new VED changes will only affect new vehicles that are registered with the DVLA on or after 1st April 2017. Therefore the new changes won't affect your current lease contact as your vehicle will continue to be taxed using the old system.

We are aware that many customers will be aiming to take delivery of their new lease vehicle before the end of March. Please contact us to discuss the VED changes or your options around stock or quick factory order vehicles.

You can view our special offers on our website here: Gateway2Lease Special Offers

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