New car tax rates explained

Posted on March 28th, 2017 by Rob Marshall


When GEM compared the Vehicle Excise Duty rates between a Porsche Panamera S E-Hybrid and a decade-old Volkswagen Polo automatic, we concluded that the car tax system (VED) had become unbalanced. For buyers, who could afford a new (or nearly new) car, they tended to pay either nothing, or very little, in VED. The main reason comes down to a flawed-emissions based tax system that was established in the late 1990s, which linked CO2 emissions to tax rates.

It seemed as though the Treasury agreed with us that the current system needed overhauling it has introduced new tax bands, which affect cars first registered after April 1st. They do NOT apply to vehicles registered before 1st April, for which the earlier tax bands still apply.

The new VED system

While the full detail can be viewed here, this is a summary. It should be simple but is rather convoluted:

New cars with a list price of under £40,000 command a one-off car tax fee in their first year, based on CO2 emissions. The maximum sum payable is a one-off £2,000. Electric and alternative fuelled cars that emit less than 50 grammes of CO2 are liable for nothing.

After the first year is over, a standard annual rate applies. Electric car drivers pay nothing annually. Diesels and petrols demand £140. Alternative-fuelled cars, including Hybrids, will cost £130 annually.

If the vehicle in question possesses a list price of over £40,000, the standard annual rate attracts an extra £310 surcharge each year until the vehicle’s fifth birthday. After then, the reduced standard rate applies.