Understanding the April 2018 diesel car tax increase

Fuel pump at Petrol Station. Diesel Pump.

If you’re thinking about buying a brand new diesel car this year, then be prepared to pay extra Vehicle Excise Duty (VED) in the first year. Also referred to as vehicle tax and sometimes car tax, VED underwent some big changes in 2017. Previously, vehicles producing less than 100g/km of CO2 emissions were exempt from paying VED but, since April 2017, only pure electric models producing zero emissions are fully exempt.

In April 2018, the UK government introduced some more changes that apply only to new diesel cars registered after 1 April 2018.

New vehicle tax rates for diesel cars

For all brand new cars registered on or after 1 April 2017, the first year VED rates are CO2 based. From 1 April 2018, the first-year rate for brand new diesel cars has gone up one band – for those that don’t meet exhaust emissions standards known as Euro 6d which are due to come into force for all new diesel cars from January 2021. The government hopes that this change will encourage car manufacturers to introduce these cleaner diesel cars earlier.

Depending on a car’s official CO² figure, this change to the first year rate of VED for a brand new diesel car could mean paying anywhere from £15 to £520 extra. However, no cars that meet Euro 6d standard are expected on the roads until 2019, so essentially all new diesel cars can expect a VED increase for their first year.

For anyone choosing a brand new company car, you need to be aware that from 6 April 2018 the diesel supplement for Benefit in Kind (BIK) tax increased from 3% to 4%, for those that don’t meet the Euro 6d standard.

Reasons for the rate changes

These latest first year VED rate changes in 2018 have been introduced to encourage car manufacturers to produce cleaner diesel cars sooner than the Euro 6 emissions regulations require. It’s believed that around two million diesel cars will be affected by the new VED rates.

It follows the previous changes in 2017, which were introduced by the government to protect tax income as more and more low and ultra-low emission vehicles are bought. One downside with many car manufacturers now producing low emission vehicles is that the treasury was receiving much less revenue from VED, so it needed changing. And with new government targets to improve air pollution, it’s hoped these rate changes will encourage more drivers to choose cleaner new cars.

What happens when buying a used diesel car?

It depends when it was first registered. The latest rates for VED:

  • Before 1 March 2001 – VED is based on engine size
  • Between 1 March 2001 and 31 March 2017 – VED is based on official CO2 emission
  • Since 1 April 2017 – VED is £140 per year. If the list price when new was more than £40,000 then you’ll have to pay an extra £310 in the first 5 standard rate years.

There’s a rolling 40-year exemption from VED, so cars built before 1 January 1978 are exempt from 1 April 2018.

Some of the best second-hand diesel cars

Diesel has received some bad press in the past few years, mainly due to concerns over its negative impact on air quality. This mainly affects drivers in cities, with more places expected to introduce charges, such as London’s T-Charge, or access restrictions for older, more polluting diesel cars.

If you don’t live and drive in the city regularly, and especially if you cover a high mileage, a diesel car can still be a good choice. To help give you an idea of the choice available, these are some of the best-selling diesel cars in the UK in 2018:

  • Ford Fiesta: consistently the UK’s most popular car, there are plenty of 1.4, 1.5 and 1.6-litre diesel models available.
  • Volkswagen Golf: a wide range of diesel VW Golfs go from economical 1.0-litre to top-of the-range 3.2-litre models.
  • Ford Focus: great as a family car or for new drivers, diesel Ford Focus cars are reliable and available with a wide variety of features.
  • Nissan Qashqai: this crossover SUV offers plenty of space and good fuel economy for a larger vehicle.
  • Vauxhall Mokka X: the smallest Vauxhall SUV, it’s stylish and performs well with 1.6 and 1.7-litre diesel engines.

Future changes

Currently, the fuel economy you get in real world driving is often around 25% worse than official manufacturer figures. The old laboratory test that worked out fuel consumption and CO² emissions is being replaced with a new, more representative test known as the WLTP. This is expected to result in higher but more realistic figures for new cars on sale.

The government has indicated that first year VED rates and company car Benefit in Kind rates will be based on WLTP figures from 2020. Though the full consequences of this change remain unclear, it could mean a full overhaul of the VED and company car tax systems in the future.

Changes to cars and driving habits have made it harder for the old test to accurately predict emissions and fuel consumption in the real world. This will mean a revision or complete overhaul of the current VED band system, that might lead to an increase in charges for those buying a brand new diesel car.

So, if you’re planning on buying a diesel car, make sure you check the VED rate, whether you’re choosing a used model or looking for a brand new vehicle.

Image courtesy of iStock.

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