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Your guide to the 2017 road tax changes

Thinking of buying a new car in the next few months? Changes to the way road tax is calculated are coming that, if you don’t know the details, could leave you out of pocket. Read our guide to the current and future systems below to avoid a nasty surprise in 2017.

What’s the current road tax system?

Cars registered before March 2001 are taxed according to their engine size with engines smaller than 1549cc attracting a charge of £140 and those above this figure, £225. Since March 2001, all new cars have been taxed on their CO2 emissions measured in grammes per kilometre, expressed as, for example, 100g/km.

Emissions levels are divided into 13 bands, ranging from A (up to 100g/km) to M (over 255g/km). Each band attracts a different charge, calculated on a sliding scale. However, there are two levels of charges: one applying in the car’s first year of registration (called the ‘first-year rate’) and another (called the ‘standard charge’) thereafter. For cars that emit low levels of CO2, both rates are the same but from band H (166-175g/km) the first-year rate is much higher, the idea being to alert car buyers to their vehicle’s high CO2 emissions.

The point of the current tax system is to encourage the take up of cleaner, less polluting vehicles. For example, cars rated at under 100g/km CO2 pay no road tax but cars that emit 121-130g/km CO2 pay £130.

So what’s the problem with the current road tax system?

In combination with EU laws ordering car makers to reduce CO2 emissions, the current tax system has been so successful that an increasing number of small and medium-sized vehicles now fall into Bands A, B and C – or £0, £20 and £30. As a result, the government has devised a new system intended, it says, to make the system more sustainable.

What’s the new road tax system?

All new cars registered after 1 April 2017 will, as before, be subject to 13 rate bands linked to their CO2 emissions in their first year. The big news, as far as critics of the new system are concerned, is that taxation bands have been created for cars emitting less than 100g/km CO2.

As a result, the lowest tax rate kicks in at 1g/km CO2, for a charge of £10. This rises by steps to £120 for a car emitting 100g/km CO2. Remember, under the present system, cars emitting up to 100g/km CO2 pay nothing.

At the other extreme, the rates in higher bands can be very expensive, with a car emitting over 256g/km CO2 attracting a £2000 first-year charge.

The other big difference between current and new systems is that under the new one, in the second year and beyond, these CO2-related bands are replaced by a standard flat-rate annual charge of £140, regardless of a car’s emissions. That said, cars costing over £40,000 attract an additional £310 annual supplement for five years.

Will my current car be taxed under the new system?

No – cars registered before 1 April 2017 will continue to be taxed under the present system.

How do the sums compare?

Taking an average family car, such as a VW Golf 1.4 TSI Match, under the current system it attracts an annual tax charge of £30. Its equivalent emitting the same level of CO2 (120g/km) but registered after 1 April 2017, will pay £160 in the first year and £140 a year after that.

What’s the problem?

Inevitably, the change to the new system brings good and bad news.

The good news:

  • If you buy a new car between now and the end of March 2017, you’ll pay less road tax than if you delay your decision and buy after the system changes in April.
  • If you buy a car emitting less than 100g/km CO2 you’ll be even better off since such cars attract no tax under the present system.
  • The new second-year flat-rate system is simpler than the current emissions-based one.

The bad news:

  • Cars that today attract no road tax, will do so under the new system and regardless of which band they fall into, £140 every year from their second year.
  • The new system may discourage people from buying low-emitting cars. The AA reports that 59% of its members say there will be no incentive to buy low CO2 emissions cars under the new system.
  • Under the new system only expensive pure electric and hydrogen cars will pay no road tax.
  • There will be a huge new car demand spike before April 1 2017 that may not benefit consumers.

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