Posted on 31 March 2021 by CarTakeBack

Car tax, or Vehicle Excise Duty, is due to increase from April 1st. While the increases are said to be in-line with inflation, the motivation for these hikes is being promoted as the government’s strengthened focus on improving air quality. Whatever the reason, we’re here to let you know how the changes may affect you…

The simple explanation is that the more CO2 your car emits, the greater the increase in car tax for the first year. The rates are also likely to be higher than previous years because CO2 measurements have risen following changes in official tests.

It’s already been announced that the new rules will not be backdated to older cars, which will continue along the previous tax system.

Zero CO2, zero tax

We’ll start with the good news - if your car emits zero CO2 you’ll pay zero tax!
If you are purchasing a premium electric car worth over £40,000 you will also be exempt from the additional tax that high-value cars usually have to pay from year two to six of ownership – saving a massive £1,675!

Standard rates 

For the majority of vehicles, you will pay a rate of tax for the first year of ownership, after which a ‘standard rate’ will kick in. From April 2021, that standard rate has increased £5 across the board to £155 for petrol and diesel* cars and £145 for hybrids and alternative fuel cars.

First year rates

The first year rates of tax go up steeply as CO2 increases. Each fuel category has a different set of rates, but for any new car that emits CO2 there will be a charge.*

There is no rate increase for vehicles emitting between 1g and 50g of CO2 per km, which are subject to the same £10 charge, or between 51g and 75g CO2 per km which will still be charged £25.

The increases on last year’s rates start at the 76g – 170g of CO2 per km category, where there is a rise of £5 to £115.

People with cars in the 171g – 190g CO2 per km will see a rise of £25 to £895.

There’s a £30 rise for people with cars producing 191g – 225g CO2 per km, making their first year payment  £1,345.

The rate increases again for cars producing 226g – 255g CO2 per km, making their first year payment  £1,910.
 
The biggest increase applies to cars that emit more than 255g of CO2 per km, with rates going up by £70 from £2,175 to £2,245.

*The exception to these rates are new diesel cars registered on or after 1 April 2018 that don’t comply with RDE2 emission testing. These vehicles will be subject to a significantly higher rate of tax in the first year, sometimes double or even quadruple the equivalent rates for petrol and hybrid cars!

Tax on premium cars

Another increase in tax is on the additional rates imposed on premium car purchases that cost more than £40,000 new. That rate has increased from £320 to £335 a year for the first five years of ownership. The only exception to this charge is for zero emission vehicles for new and, unusually, for existing owners, who will all dodge this huge fee.

Calculation tools

If you want to find out your car’s fuel data, CO2 emissions and vehicle tax rates, the government’s website has all the tools you need.

Fuel Duty

One charge that isn’t increasing is fuel duty, which has been frozen for the tenth year running at 57.95p per litre.

Benefit in Kind rate changes

BIK rates (a tax on salary perks, specifically in this case company cars) are due to be re-introduced at 1%, based on income rates and vehicle value, after being scrapped in March 2020.

As of April, drivers may have to pay as much as £390 per year to use their vehicles, with zero emission vehicles not exempt from the charges. While no increase will be welcome, the 1% is still significantly lower than the previous BIK charge of 16% back in 2019.

Future purchase tax

The UK Energy Research Centre has proposed a new tax targeted specifically at purchases of new petrol and diesel owners. The government hasn’t introduced it as yet, but it’s worth bearing in mind if you are planning your future car ownership - the tax may well become law if current pollution reduction measures aren’t felt to be effective enough.

The proposed purchase tax would be aimed at those buying cars that emit more than 225g of CO2 per km. It would be introduced at a huge 50%, increasing every year, with the aim to strongly encourage buyers to choose more environmentally-friendly vehicles.