Car tax for 2018 explained

Your need-to-know guide to car tax rule changes

Whether you know it as car tax, road tax or Vehicle Excise Duty (VED), it's something all car and van owners in the UK must pay.

From 1 April 2018, car tax rules changed. So what does this mean for you? And, more importantly, should it impact your decision to buy or lease a new car? Read on for our simple guide to VED rates in 2018.

Let's be clear here, we're not talking about company car tax. The government's rules on company car tax - where greener vehicles pay less 'benefit in kind' (BIK) tax - have been set until 2019 - 2020.

New Car Tax Rates: The Facts Explained

Year 1 of ownership New cars are divided into 13 different C02 bands to determine how much you'll pay in the first year of ownership, from £0 to £2,070.
Year 2 onwards
(cars under £40,000)
If your car's list price is less than £40,000, you'll pay a standard rate or £140 per year from the second year of ownership.
Year 2 - 6
(cars over £40,000)
If your car's list price is £40,000 or more, you'll be charged a premium of £310 in addition to the standard rate - a total cost of £450 per year - payable for 5 years after the first year of ownership (i.e. from the second to the sixth year of a car's life).
Zero emissions
(0g/km) cars
Zero emission cars worth less than £40,000 don't incur any VED. However, if your car's list price exceeds £40,000, you'll be charged the £310 supplement, even if it falls into the zero emission category.
Already own your car? No one will pay more for a car they already own. The new rates only apply to new cars sold and registered on or after 1 April 2018. So the good news is that if you own a car already, there is no change to your car tax.

For cars purchased privately, essentially, the more CO2 your car emits, the more VED you pay. So if you own a 100% electric or low-emission hybrid (100g/km or less), you will have paid little or no VED under the old rules. On the other hand, if you drive a 4x4 or performance model, you'll be used to paying a lot more. But all that has now changed.

What you pay from 1 April 2018

The revised rates will apply tax to all new cars with CO2 emissions of 1g/km or more from 1 April 2018.

CO2 emissions band (G/KM) First year rate Rate from second year
    Diesel cars (not meeting the RDE2 standard) Standard rate:
Cars costing < £40,000
Second year onwards
Premium rate:
Cars costing £40,000+
Years 2-6*
0 £0 £0 £0 £310
1-50 £10 £25 £140 £450
51-75 £25 £105 £140 £450
76-90 £105 £125 £140 £450
91-100 £125 £145 £140 £450
101-110 £145 £165 £140 £450
111-130 £165 £205 £140 £450
131-150 £205 £515 £140 £450
151-170 £515 £830 £140 £450
171-190 £830 £1,240 £140 £450
191-225 £1,240 £1,760 £140 £450
226-255 £1,760 £2,070 £140 £450
255 + £2,070 £2,070 £140 £450
* Cars above £40,000 pay £310 annual supplement for five years after the first year

Source: GOV.UK (2016). HMRC Policy Paper 2015: Vehicle Excise Duty.

Read more about the diesel supplement and RDE2 on the HMRC website.

Will you have to pay the £310 car tax premium? More about the £40,000 threshold

List price is key here. It’s the final list price of your car that determines whether or not you’ll be charged the £310 supplement from year 2 to year 6 of ownership.

So if you’ve negotiated a discount on your new car, you can't avoid the premium fee because the list price will remain at £40,000. Similarly, if you choose a less expensive model and add optional extras that take the total worth of your car to £40,000 or more, you still need to pay the supplement.

On-the-road charges don’t apply, so vehicle registration, fuel and delivery costs charged by your dealer won’t affect the list price.

But does it mean you won’t be getting that new car?

With nearly all new cars eligible for the new 2018 VED rates, it’s clear that even if you choose a low emissions or hybrid model, you'll see a significant increase in your annual car tax bill. But there is a solution…

If you know what you’re looking for – whether it’s a nippy hatchback, a new family car, or even a gas-guzzling SUV – or simply don’t want to be restricted in your choice of make and model by the new VED charges, you could save money by considering a lease option.

You could save money by considering a lease car. That’s because a good car leasing company will usually include VED in your monthly rental charge.

FVL can help. With thousands of brand new and in-stock vehicles from every major manufacturer, you can choose the car you really want, all for a low monthly rental charge. And with special offers and servicing packages available, we’ll ensure you get a great deal from FVL. And the best news is that nearly all of our contract hire agreements include VED as standard, so you’ll save even more.

Don’t let car tax stop you. Talk to FVL about your next new car today.

Talk to us

With over 20 years experience, we’re experts at car leasing. Whatever you need, we’re with you on your journey. Get in touch to speak to one of our experienced experts now.