Electric cars and road tax
One of the least enjoyable parts of motoring is paying vehicle tax, or Vehicle Excise Duty (VED) as it’s otherwise known. The Department for Transport screens all cars that are registered for road use, to determine how much vehicle tax their owners must pay.
Vehicle tax in the UK is based on tailpipe emissions, specifically carbon dioxide (CO2) emissions. The more your car pollutes, the more you will have to pay. On 1 April 2017, the Department for Transport overhauled the UK’s vehicle tax system, bringing in harsher rates for higher-polluting vehicles, and making it tougher for drivers of low-polluting cars to avoid paying tax.
Vehicle tax rates explained
While other countries tax cars on their list price or engine sizes, in the UK cars and vans are taxed on how much carbon dioxide they emit from their tailpipes.
The amount is determined under standardised testing. Before September 2017, this testing regime was called the New European Driving Cycle (NEDC) test, which was conducted in a laboratory. However, in September 2017, a new set of testing guidelines, called the Worldwide Harmonised Light Vehicle Test Procedure (WLTP), was introduced.
This is still a laboratory-based test, but it’s now longer and more reflective of real-world driving conditions and behaviour than the much-criticised previous test.
All new vehicles that undergo the type-approval process are now tested under the WLTP regime. However, to add confusion, VED is still determined by the NEDC test. New cars tested under the WLTP system have their scores ‘adjusted’ to account for what the emissions would be under the NEDC test.
Tax rates for vehicles registered after 1 April 2017
In April 2017, the Government introduced a new set of VED rates. Under the old regime, any car polluting under 100g/km CO2 was exempt from paying VED. Thanks to improvements in fuel economy and reductions in tailpipe emissions, an increasing number of new cars were tax exempt, which didn’t bode well for the HM Treasury coffers.
To change things, the Department for Transport introduced a tougher set of rates. These include a first-year payment, plus a flat-fee payment for all subsequent years.
The first-year payments are still based on carbon dioxide emissions, while the flat fee payment stands at £140, regardless of emissions.
While any vehicle polluting below 100g/km CO2 was previously VED exempt, the new rates allow only zero-emissions vehicles to escape payment. This applies for both the first year and the subsequent fees.
That means only pure electric and hydrogen fuel-cell vehicles (of which there are currently only two: the Hyundai NEXO and Toyota Mirai) are tax-exempt. Hybrids and plug-in hybrid electric vehicles (PHEVs) now have to pay vehicle tax. How much depends on the amount of CO2 they emit.
First tax payment when you register the vehicle
You have to pay a higher rate for diesel cars that don’t meet the Real Driving Emissions 2 (RDE2) standard for nitrogen-oxide emissions. You can ask your car’s manufacturer if your model meets the RDE2 standard.
A key distinction to note here is that alternative-fuel vehicles face a lower tax band. The Government classes hybrids and plug-ins as alternative-fuel vehicles, meaning they come with the lower £130 flat fee and cheaper first-year fees, too.
There’s another catch with the latest VED rates. The owner of any car with a list price of more than £40,000 (regardless of emissions) has to pay an extra £310 a year for five years. This means that owners of, say, the Tesla Model S, which starts at above £40,000, have to pay £310 for five years – even though is a zero-emissions car.
The fee stays with the car, so anyone purchasing a used Tesla Model S that was first registered after 1 April 2017 will still have to fork out the payments.
Tax rates for vehicles registered between 1 March 2001 and 31 March 2017
Cars registered between 1 March 2001 and 31 March 2017 fall under a different tax banding system, which heavily favours electric vehicles and hybrids. Crucially, there are also no flat fees, with owners of cars that pollute less paying little every year.
If you’re looking at used electric or hybrid cars, it’s worth checking whether it was first registered before 31 March 2017, as these cars are fully tax-exempt. The old rates also meant that there were no supplements for vehicles costing more than £40,000.
Will electric vehicles face different taxes in the future?
While pure electric vehicles are tax-exempt (if they cost below £40,000), this may not continue forever. For one, as more cars become electric, the Government loses more and more in fuel duty. Currently, the Government makes around £28 billion a year from the 57.95p per litre of fuel duty added to petrol and diesel.
To make up for the shortfall in the future, several proposals have already been made. One is to introduce road charging, where vehicles will be charged for the miles they drive. As cars become more connected, where they are able to communicate with one other and the roadside infrastructure, one of the ideas that has been mooted by think tanks is to charge owners a small fee for each mile driven.
Although the Government has taken no official stance on this yet, it has said it’s investigating alternatives for fuel duty in the future.