VED car tax changes: 2017 Autumn Budget brings new rules for diesels

New VED road tax rules focus on NOx emissions in diesel cars sold from April 2018

The plight of the diesel car looks set to worsen, as the UK Government has released a new set of VED road tax rules which will apply to all new diesel vehicles sold from April next year.

Based around the forthcoming Real Driving Emissions phase 2 (RDE2) regulations that aim to measure 'real world' economy and emissions, the change will see the ‘First Year [tax] Rate’ currently applied to new diesel cars rise by one band if they cannot meet the Euro 6 emissions standards in the RDE2 'real world' tests.

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It is expected that more cars will be exempt in future as a new focus on the reduction of NOx and particulate emissions as well as CO2 enters the manufacturers' consciousness. Regardless, this new tax will only apply on the initial first year tax payment, and won’t represent as big a change as was announced to the VED tax bands earlier in the year.  

Road tax changes from April 2018

Potential buyers of new diesel cars were dealt a hammer blow in this week’s Autumn budget. Chancellor Philip Hammond announced that from 1 April 2018 new diesels could be moved to higher tax bands if they don’t meet certain emissions regulations.

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The cars in question will be subjected to the Real Driving Emissions Step 2 test, which measures NOx emissions under real-world driving conditions. Currently, a maximum limit of 80mg/km has been set, although the government has allowed for a compliance factor of 1.5 times, elevating the true limit to 140mg/km. However, cars that breach this upper figure will be pushed into the tax band above, putting up the cost of ownership in the first year.

The Treasury estimates nearly two million cars will suffer the elevation penalty, but those that do are unlikely to incur a large financial penalty. For instance, Ford Fiesta owners will see their first year VED rates jump by £20. Only drivers of particularly dirty cars, such as big SUVs, may consider downsizing in light of the changes, with a Porsche Cayenne now likely have £300 added to its first year tax bill. It’s also worth considering that these initial VED bills are included in the car’s price, so manufacturers may choose to swallow the cost, rather than pass it on to the owner..

The latest round of VED revisions centre around diesel cars and only impact the first year tax rate paid – the annual £140 fee remains. The table below shows how the new rates will work. Any car failing to meet the Euro 6 standards in real world testing would move up a band, and thus pay anything from £15 to £500 more in first year rates.

New diesel tax bands from April 2018

CO2 emissions (g/km)Current first year VED ratesFirst year VED rates for diesels bought from April 2018 not meeting real world Euro 6 standards 
0£0£0
1 - 50£10£25
51 - 75£25£105
76 - 90£105£125
91 - 100£125£145
101 - 110£145£165
111 - 130£165£205
131 - 150£205£515
151 - 170£515£830
171 - 190£830£1,240
191 - 225£1,240£1,760
226 - 255£1,760£2,070
Over 255£2,070£2,070

VED Car tax rules as of April 2017

As a reminder, as of 1 April 2017 this year there are far fewer tax-free cars. In fact, all cars except pure electric vehicles attract a flat rate of £140 a year, regardless of their emissions. Even the very cleanest plug-in hybrids aren't exempt.

The first year's cost is emissions based - with relatively clean vehicles like the Renault Twingo GT attracting a £160 charge while dirtier cars like the Ford Mustang are right up there at £1,200. This is likely to be factored in to list price, while the following years are set at the fixed rate of £140.

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If you were thinking of beating the new system by heading out and buying a Tesla Model S though, think again. Cars with a list price of over £40,000 now cost a further £310 a year for years two to six of ownership. For cars that already qualify for the £140 yearly charge, that's a £490 bill - plus the first year's emissions-based fee. That totals a £1,550 surtax if you keep your car for six years.

Take the BMW i8 for example. Its CO2 emissions are rated at 49g/km thanks to its plug-in hybrid drivetrain, less than half that of the tiny Renault Twingo GT at 115g/km. Yet with the new rules, the tax bill after five years will be £1,090 less on the Twingo, at £720, than it will be with the i8’s new £1,810 bill. Before 1 April, the i8 wouldn’t have cost you a penny in VED over the same period.

After the first year rates, £10 for the i8 and £120 for the Twingo GT, a standardised rate of £140 applies for all cars, with the exception of emissions free vehicles that are exempt from an emissions-based annual rate. While nobody will be cross-shopping i8s with Twingos, the figures below are a good illustration of how previously low-tax vehicles have been affected by the new rules.

There are other examples, too. If you were um-ing and ah-ing over stirring a manual or opting for PDK on brand new, bog standard Porsche Cayman, think carefully.

Opting for the latter shift method pushes the list price over the £40,000 threshold, incurring £1,240 more in VED taxation costs over five years under the new rules. Currently the PDK represents a £125 VED saving with the manual and PDK sitting a tax bracket apart due to its higher economy and lower CO2, but after April 1st, both will fall into the same emissions bracket. If you’re desperate for a PDK-equipped Cayman, then make sure you buy it before April 1st.

How manufacturers will address these changes remains to be seen. No doubt there will be some bending and skirting of these new rules via subtle pricing trickery.  Our best guess is cars currently listed slightly over £40,000 will drop just under this price point.

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If we refer back to the Cayman, the two transmissions options are listed as separate models. If Porsche bundle the two together and have the PDK transmission as another box to tick rather than a standalone model, a PDK’s list price would be the same as manuals, ultimately falling beneath the £40,000 figure.

> For a full list the changes to VED please refer to our sister site Auto Express.

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