Changes to Car Tax (VED) and Benefit-in-Kind on Company Car Tax coming in April 2020

13 February 2020

What is VED?

If you're a driver in the UK, you'll know that you have to pay for something called Vehicle Excise Duty (VED) or a road fund licence (commonly called car tax or road tax). The amount you pay will depend on factors such as the amount of CO2 emissions your vehicle generates at the time of the first registration, and also whether the vehicle has a list price of £40,000.00 or more.  In simple terms though, the lower your CO2 emissions are, the lower the rate of your vehicle excise duty.

Why is VED increasing?

Previously, this was measured through the New European Driving Cycle test (NEDC) which was first developed in the 90s and last updated in 1997. However, it has now become outdated and a new method of testing called Worldwide Harmonised Light Vehicles Test Procedure (WLTP) is now due to replace it.  This new method is able to determine a more realistic evaluation of your vehicle's official fuel consumption (mpg), driving range and CO2 emissions (g/km). As a result, your vehicle's CO2 emission output will change, placing it in a higher tax band to its current rate, causing an increase in the cost of your road fund licence for the first year. 

When is VED set to increase? 

The change is set to be introduced on 1st April 2020 for Vehicle Excise Duty and 6th April 2020 for Benefit-in-Kind on Company Car Tax. Remember, the change will only affect your very first Vehicle Excise Duty payment when you buy and register a new vehicle after these dates. 

What Tax Band is my new car in?  

Of course, you're now wondering what this all means for you. Using the table below, you will be able to calculate which tax band your vehicle would be in if you were to buy it after 1st April 2020:

 

Standard rate tax for electric cars from year two continues to be free, though any petrol or diesel powered car will be subject to a standard rate fee of £140 every year.

 

Benefit in Kind on Company Car

An update to benefit-in-kind rates is also coming into effect this April and is likely to make electric vehicles more affordable than ever for company car owners. 

It is expected that the Chancellor will announce changes to Benefit-in-Kind rates in next month’s budget, which may well see electric cars being exempt from paying any charges.  If this is the case then it means company car users who drive an electric car will be charged at 0 percent in benefit-in-kind which is likely to dramatically increase the uptake of electric vehicles as the updates mean motorists could save up to £1,000 per month on company car charges if they opt for an electric car over a traditional one.

More electric cars on the UK roads?

The updates to the policy is seen as an attempt to drive more motorists into the electric car market to ensure the government hits the 2050 zero-carbon target. 

Increased tax breaks are slowly bridging the difference in affordability between electric vehicles and traditional vehicles, despite the higher upfront costs.  Owners of fully EV machines also do not need to pay any city congestion charges. 

With the Government's plan to bring the ban on new petrol, diesel and hybrid vehicles forward to 2035, we will definitely be seeing more changes, hopefully making electric vehicles more attractive and affordable.

 



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