The Treasury is looking for ways to significantly increase taxes and one recent initiative was to change the duty on cars.
New Road Tax rates (aka Vehicle Excise Duties/VED) will come into force in April for all new cars registered on or after 1 April 2017.
In the first year, the changes, which were announced in the July 2015 budget, will only apply to new cars but the likelihood is that when the new system is fully in place in 2018 there will be further changes perhaps not only covering newly-registered cars.
What will the Road Tax changes mean?
Different rates will apply to cars with a purchase price below £40,000 and for those costing £40,000-plus. The tax applies to all new cars.
According to the HMRC website “First Year Rates (FYRs) for Road Tax (VED) will vary according to the carbon dioxide (CO2) emissions of the vehicle. A flat Standard Rate (SR) of £140 will apply in all subsequent years. except for zero-emission cars for which the SR will be £0.
“For cars above the £40,000 cut-off there will be a supplement of £310 on the SR for the first five years, after which Road Tax will revert to the SR of £140.”
You can find a full list of the rates here.
Primarily a revenue generating exercise for the Government, the new rates could have a significant impact on SMEs, whether they are buying new cars outright, or via asset finance or are leasing them.
Among those affected will be private hire and taxi businesses, many of which are owner-drivers. Given the high mileage that they do if they are successful businesses their cars are likely to need replacing more frequently, especially as all such vehicles are subject to annual local authority checks for licensing to ensure they are roadworthy and in sufficiently good condition to carry passengers.
But any SME that maintains a fleet of cars, perhaps for their sales force or for employees whose position requires them to visit customers and clients, may face significant increases in costs, especially if the company, rather than the individual user, is responsible for paying the Road Tax.
Lease hire agreements usually include the funders renewal of road tax as part of the service. It is likely that the extra Road Tax costs will be passed on to the lessee as part of their monthly payments.