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Revised VED Rates will affect new and used sales
publication date: May 24, 2017
author/source: Melanie Carter
According to the Society of Motor Manufacturers and Traders there has been a significant fall in new car sales since the introduction of the new Vehicle Excise Duty rates on the 1 April 2017, says Melanie Carter.
‘Significant’ – equates to nearly a 30 percent drop off in private sales from the exceptional month of March, when people rushed to secure the old lower VED rates for their new car purchase which will continue for the foreseeable future.
Overall 2017 has seen a 1.1% increase in car sales over the last year with 961,285 cars being registered to date with a ratio of 54:46 business to private purchases. Despite the recent bad publicity diesel sales remain strong, accounting for around 44% of the market.
The change in the VED rates also marginally hit the popularity of alternative fuel cars (hybrid and pure electric sales) – slowing the demand down by 1.1% over 2016 figures - with sales in April 2017 of 6,273 units.
Whether this really means that the new VED rates have had a real impact, is hard to tell as there was a bit of a ‘gold rush’ to the beat the 1 April 2017 deadline, which was fuelled by heavy advertising. Well, that was the narrative of the advertisers reinforced by their marketing departments – but was it wise consumer advice or was it a little misleading?
Possibly, as for some potential owners, it was better to wait for the new rates to come into play, something we did not hear too much about.
Yes, there were plenty of losers – for example, those buying low emission cars, those sub 100 g/km emission diesel and petrol powered cars that were previously zero-rated will see an increase in duty payable. In the past, there was nothing to pay for the first year and subsequent years were zero rated (this currently still applies to a car registered before the April 2017 deadline).
But now they are taxed between £10 (1-50 g/km) and £120 (91-100 g/km) in the first year – and then £140 per year in the following years, which is the same rate as all cars, whatever their emissions priced under £40,000 (£130 for alternative fuel cars such as hybrids and plug-ins). The only cars that are now effectively exempt are those pure electric cars with zero tailpipe emissions such as the Nissan Leaf or Renault Zoe that are priced under £40,000.
This means that if you bought the humble Ford Fiesta Zetec 1.0T EcoBoost 100PS (emission 97 g/km), one of the UK’s best selling cars; you will now face an increase in VED over four years of £540. Under the old tax regime, it worked out as follows, 1st year £0 and then (3 x £0) = so nothing to pay – now it would be 1st year £120 and then (3 x £140) which equates £540. It will also have some impact on future resale value as cars registered before April 2017 will be more financially desirable as they will still for the foreseeable future be zero rated for VED when re-sold.
This all seems a little unfair with future models tending to be more fuel efficient with lower emissions. It might put off some buyers who are currently driving lower VED rated cars from buying a new more eco-efficient one, therefore, having an impact on the environment, and it could have a future effect on jobs. There is, of course, the argument that producing a new car produces more greenhouse gases than driving a 3 or 4-year-old car.
Spend £40,000 or more on a new car and you will pay an additional £310 per year premium on top of the £140 that everyone else pays for the first five years after the car’s first registration date. This also applies to zero emission cars with a list price over £40k such as the Tesla Model S or X, or any of the forthcoming hydrogen fuel cell cars like the Honda Clarity. It will also hit for example the higher end hybrid Mitsubishi Outlander PHEV models, i.e. the PHEV 2.0 5HS has a list price of £45,999 – pre-April it would have been £0 for the 1st year and then (3 x £0) = so nothing to pay, but now with CO2 emissions of 41 g/km you would pay in the 1st year £10 and then (3 x £440 as it is a hybrid over £40k) = £1330 or £930 more over 4 years than if you bought a sub £40k Outlander PHEV model.
And if you are planning to buy a new car around the £35-40,000 figure, watch out for the factory fitted options of sub £40k cars as these are included in the VED threshold calculation. And it is the manufacturer’s published official list price, not the real price paid with negotiated discounts, etc. It is not the on the road price – which may include any delivery charges, VED, the £55 new vehicle registration fee, number plates and fuel.
I do not know how future VED rates will work with second-hand purchases, where the buyer doesn’t know what the factory fitted options cost on top the list price when the car was new – but I am guessing that this must be tracked by the DVLA but it will be confusing for potential buyers and sellers alike. You will pay the £310 premium for 5 years from the 2nd time the car is taxed, even it if is only a month old. Not too sure how this will work if you buy tax 12 months at a time though.
So why did the VED rates need an overhaul – well the answer is simple around 25% of all new cars were VED zero rated and with around 75% of all new cars being under 130 g/km, little money was being handed over to the Chancellor of the Exchequer, which in turn meant it couldn’t be sunk into the road infrastructure that so badly needs new investment, which of course is the reason why the roads are in such poor condition or so some would lead you to believe.
So apart from the Chancellor of the Exchequer’s purse were there any winners? Well yes there were, but do not get too excited as strangely they aren’t those lovely low emissions cars that I thought we were all supposed to be driving for their green credentials but cars such as the Honda CR-V SUV which will now work out a little cheaper to tax. For example, the petrol powered S 2.0 CR-V i-VTEC (list price £24,025) would now be such a model. Under the old VED regime, you would pay £300 in the first year and then £210 per year – so over 5 years you would pay a total of £1,140 – now you would pay £500 in year one and then £140 per year – saving £80 over five years or the price of one tank of fuel.
If you are looking to buy a new Ford Mustang Fastback 5-litre V8 with a list price of £37,225 and the not so green CO2 emissions of 299 g/km, then the savings are more significant under the new VED ruling – under the old rates you would pay £1120 + (3 x £515) = £2665, now you are paying £2000 + (3 x £140) = £2420 or a saving of £245 over four years – which does not seem to reward the 25% of drivers who are running a car with emissions under 100 g/km.
Currently, most car manufacturers are absorbing the increase in the first years VED in the on-the-road price of the car, so if there is a change most people won’t notice the increase when buying the car. It is only in the following years that it might make a difference.