Understanding how vehicle tax bands work is something that every fleet manager should be aware of, but with regulations constantly fluctuating and changing, it can be easy to lose track.

New changes to the way HM Revenue & Customs (HMRC) calculate Vehicle Excise Duty (VED) means there’s now more focus than ever on energy-efficient vehicles.

The amount of tax you pay on a vehicle is directly related to the amount of CO2 it produces, which is why low emission fleet vehicles are such a valuable asset to your business.

Before choosing a new vehicle to join your fleet, it’s worth checking out its CO2 band so you can ascertain just how much you’ll need to pay in terms of tax. In this guide, we tell you everything you need to know about CO2 bands and their respective rates, helping you to build a company fleet consisting primarily of low emission fleet vehicles.

How car tax works

Company car tax was reformed in April 2002 to an emissions-based system. How much you pay will depend on a variety of factors including the type of vehicle, the size of its engine, and its CO2 emissions.

For all cars registered before 1st April, 2017, car tax will still be paid under the old system for observing CO2 figures, known as the New European Driving Cycle (NEDC). Under this, vehicles are charged a standard rate according to their CO2 emissions band that’s subject to change each year.

But it’s been widely acknowledged that these NEDC figures are out of date, and aren’t truly representative of emissions in real world driving scenarios. That’s why it’s being phased out, and won’t be conducted on any newly registered models.

Since 1st September, 2017, all new models have had to undertake the replacement test, known as the World Harmonised Light Vehicle Test Procedure (WLTP). While still a laboratory test, it’s far more lengthy and stringent than its predecessor, and is stricter when it comes to recreating real-world conditions in the lab.

WLTP CO2 figures replaced NEDC figures for all cars on sale from 1st September, 2018. These figures will also be mandatory in showrooms as of 1st January, 2019. For comparison sake, manufacturers may still provide NEDC figures for you to glance at, but it’s the WLTP figures you’ll want to pay attention to – if they’re available yet. It’s anticipated that these will show an average 22% decrease in emissions performance, which will be reflected in the VED you’ll pay. This will happen from 1st April, 2020, when the WLTP figures fully replace NEDC figures for tax purposes. Though you’ll already be paying according to the WLTP figures anyway if the vehicle is a model registered after 1st September, 2018, when the NEDC test ended.

There’s another test that’s recently been introduced, known as Real Driving Emissions (RDE). It commenced on 1st September, 2017 for all newly-registered models, and all cars on sale will need to have taken and comply with the test by 1st September, 2019. It’s intended to supplement the WLTP as a real-world – rather than laboratory – test of a model’s emissions, and will allow regulators to check that the results of the WLTP match what really happens out on the road. An even more stringent version of the test will be introduced for all cars on sale come September 2020, known as RDE2.

VED rates for cars registered between 1st March, 2001 and 31st March, 2017

For fuel vehicles registered between these dates, the standard rate is based upon CO2 emissions bands, the rates for which are set each year.

Band A vehicles which produce less than 100g/km of CO2 pay no charge, while Band B and C will pay £20 and £30 respectively. Vehicles with over 120 g/km will see charges rise significantly, with the highest fee being £535 (Band M). This will increase to £555 in 2018/19, with most other bands likely to increase in price in the future too.

Table Image 1.PNG (1)

 

VED rates for cars registered on or after 1st April, 2017

Cars registered from 1st April, 2017 onwards are taxed under a different VED regime than the annually-set, purely CO2-dictated “standard rates” of previous years. The FYR (first-year rate) retains a link to the vehicle’s CO2 emissions, while a flat SR (standard rate) of £140 applies in all subsequent years (except for electric cars). These rates are also affected by whether your car passes the RDE2 standard, when it is introduced.

Table Image 2.PNG (1)

 

Other factors to consider:

·         The first-year rate is based on official CO2 data. This will migrate from NEDC figures to WLTP for all cars on sale come April, 2020. For new models, the WLTP figures are already being used.

·         Any diesel cars that don’t meet the incoming real-world emissions standards (RDE2) must already pay a higher first year rate.

·         £140 is the standard rate for most cars.

·         Alternative-fuel vehicles (such as hybrids) receive a £10 discount in any given year. That makes their standard rate £130.

·         Electric vehicles have a standard rate of £0.

·         £310 per year is added to cars listed at £40,000+ in each of the first five standard rate years.

Discounts for low emission fleet vehicles

The Government is eager to reduce the rise of harmful carbon emissions, rewarding vehicles with low CO2 emissions by placing them in lower tax bands. Fleet managers are encouraged to be eco-friendlier, with Government-funded discounts available on new, low emission fleet vehicles including vans, cars and motorcycles – up to a maximum of £3,500.

How Allstar’s fuel cards can help

As a fleet manager, VED is just one of many charges you’ll have to handle over the course of a fiscal year. There’s a lot to bear in mind when it comes to CO2 emissions, but the good news is that with an Allstar One fuel card you don’t need to worry about saving money on fuel.

Simply give each driver a card, set spending limits and allowances, and watch your business benefit from greater convenience and HMRC-compliant invoicing. What’s more, our Business Mileage Monitor works in conjunction with our card to help you accurately track your mileage, so you can streamline your fleet.

Discover how your business can benefit from an Allstar fuel card. Get in touch with our expert team today on 0345 266 5101 or by using our useful contact form.