The UK government has a problem. Its income from vehicle excise duty (VED, or road tax) and fuel taxes has plummeted in recent years thanks to increasingly efficient cars; it’s reckoned around a quarter of new cars pay no road tax at all. As a result, the current CO2-based system is set to be overhauled from 1 April 2017 in a bid to increase revenue from drivers.
The current system sees car owners paying more VED the more CO2 their car emits. Under the new regime only pure-electric cars with tailpipe CO2 emissions of 0g/km will be exempt; all other cars will pay a flat fee of £140. However, to bump up its income further, the government is also imposing an extra annual charge of £310 on any car costing over £40,000. This is for the first five years only though; it’s to stop older, thirstier cars from quickly becoming worthless, because of the high cost of taxing them.
If you buy a car with a list price of £40,000 you’ll have to pay that £310 annual supplement (for the first five years), even if it’s an electric car such as a Tesla. This list price includes any optional extras you specify, so just a few hundreds pounds worth of options could end up costing you an extra £1550 over the next five years. Incidentally, the list price doesn’t include any on-the-road charges such as number plates, fuel, delivery charges or a new car registration fee. Also, even if you negotiate a big discount it’ll make no difference; the bill you pay is based on the list price, not the transaction price.

First year fees
As before, there’s also a first-year fee to pay, but this doesn’t necessarily match the standard rate that applies from year two onwards. But whereas the old first-year charge was capped at £1120, the maximum is now £2000 for cars that emit over 255g/km of CO2.
While it’s easy to be smug, knowing your car emits very little CO2, it’s the most efficient cars that have been hit hardest by the new rules, as you can see from the tables below. Those that emit under 120g/km used to be charged no more than £30pa; anything under 100g/km was previously free. But under the new rules sub-100g/km cars have to pay up to £120 for the first year then £140pa from the second year on. Meanwhile, a car emitting 115g/km previously paid nothing for the first year then £30pa; that same car will now be charged £160 for the first year then £140 annually from year two.
It gets worse. A car registered on 31 March and rated at £175g/km attracted a first-year road tax bill of £300 – but register the same car on the next day and that cost leaps to £800. The equivalent costs for a car that emits 200g/km are £500 and £1200; a 140% increase. To put that into perspective, here are a few sample CO2 ratings:

• Audi SQ7 4.0 TDi 190g/km
• BMW 320i xDrive 164g/km (147g/km in auto form)
• Ford Focus 1.0T 99-108g/km depending on specification.
• Renault Clio 1.2 TCe 118g/km

Outgoing charges:

CO2 emissions  (g/km)	First year rate	Standard rate
up to 100	0	0
101-110	0	£20
111-120	0	£30
121-130	0	£110
131-140	£130	£130
141-150	£145	£145
151-165	£185	£185
166-175	£300	£210
176-185	£355	£230
186-200	£500	£270
201-225	£650	£295
226-255	£885	£500
over 255	£1120	£515

New charges:

CO2 emissions  (g/km)	First year rate	Standard rate
0	£0	£0
1-50	£10	£140
51-75	£25	£140
76-90	£100	£140
91-100	£120	£140
101-110	£140	£140
110-130	£160	£140
131-150	£200	£140
151-170	£500	£140
171-190	£800	£140
191-225	£1200	£140
226-255	£1700	£140
256+	£2000	£140

Bear in mind that cars with permanent four-wheel drive emit more CO2 than those that are front- or rear-wheel drive. However, some of the more sophisticated models have part-time four-wheel drive which sends power to the second axle only when needed, and these are much more efficient as a result.
Also, some automatics are less efficient than their manual counterparts, although in the case of the BMW above, the new generation of automatic gearboxes can use less fuel than their manual equivalents – it’s always worth looking at the brochure to see what’s what. Just don’t get too hung up on the road tax bill in isolation though; as we explained last year, the biggest cost of running a car is usually depreciation.
Putting it to the test

To illustrate what’s going on with the new road tax rules, here are five examples, explaining what you’ll pay over five years with the old system, and what you’ll pay under the new regime:
Nissan Leaf 30kWh Tekna

• List price: £27,790
• CO2 rating: 0g/km
• Previous first-year rate: £0
• New first-year rate: £0
• Previous annual cost: £0
• New annual cost: £0
• Previous cost over five years: £0
• New cost over five years: £0

Ford Focus 1.5 TDCi 120 Zetec

• List price: £20,295
• CO2 rating: 99g/km
• Previous first-year rate: £0
• New first-year rate: £120
• Previous annual cost: £0
• New annual cost: £140
• Previous cost over five years: £0
• New cost over five years: £680

Tesla Model S 75D AWD

• List price: £84,480
• CO2 rating: 0g/km
• Previous first-year rate: £0
• New first-year rate: £310
• Previous annual cost: £0
• New annual cost: £310
• Previous cost over five years: £0
• New cost over five years: £1550

Audi A8 3.0 TDI quattro Sport

• List price: £55,157
• CO2 rating: 155g/km
• Previous first-year rate: £185
• New first-year rate: £500
• Previous annual cost: £185
• New annual cost: £450
• Previous cost over five years: £925
• New cost over five years: £2300

Ferrari 488GTB

• List price: £182,844
• CO2 rating: 260g/km
• Previous first-year rate: £1120
• New first-year rate: £2000
• Previous annual cost: £515
• New annual cost: £450
• Previous cost over five years: £3180
• New cost over five years: £3800

As you can see, thanks to the ramped-up first-year rates, under the new scheme everyone pays more if buying a new car. Buy one registered before 1 April 2017 though, and you’ll be shielded from this cost. Crucially, the new charges apply only to cars registered from 1 April 2017; the previous rules will apply to older cars, so nothing will be applied retrospectively. That’s both good and bad news because if you run an ultra-clean car already you know what the costs will be. But these new tax rules will almost certainly adversely affect the values of cars registered from 1 April, while slightly older cars could end up being worth a bit more if the running costs are significantly lower. Only time will tell…
Richard Dredge
February 2017