While tax might often seem one of life’s few certainties, there remain ways in which you can reduce how much of it you need to pay.
This certainly applies with car tax; however, there are numerous changes that have recently been enacted and, in the process, muddied the waters concerning how you can trim the amount you need to pay in tax on your car.
These are changes that have been made to Vehicle Excise Duty or VED, as it is officially called. There’s a rather complex picture painted by these changes, which came into effect on April 1, but one thing is clear above all: if you buy a new car now, you could end up having to pay much more in VED than you would have been responsible for under the old system.
In this article, we will detail how you can still take advantage of parts of the new system to save yourself significant amounts on car tax. We will also explain how even your car insurance policy could play a large part in minimising your car-related obligations to the Exchequer.
1. Use or buy a car that was registered before April 1 2017
One great piece of news is that, if your current car was registered ahead of April 1, you won’t be financially hit at all by the new rules, as Daily Post explains. Instead, you will continue paying VED under the previous system; the rate which you were paying, or soon due to start paying, won’t change from what was the case pre-April. The changes apply strictly to cars registered from April 1.
Also, these changes don’t apply to second-hand cars. Therefore, if you are in the market for a replacement for your current car, you could avoid paying tax under the new system by purchasing a used vehicle. Nonetheless, we emphasise that, before you buy this vehicle, you must check that it was registered before 1 April 2017; if it wasn’t, you would be paying under the new system.
2. Buy a zero-emissions car costing less than £40,000
The two main factors influencing how much VED is payable are the car’s list price and the carbon emissions that the vehicle will produce when it is driven. For deciding the extent to which emissions should affect VED in the first year that the car has an owner, the government has specified 13 different tax bands.
In the initial year, you would pay no VED whatsoever if your car falls into the lowest of these bands. However, the car would only fall into that band if it is a zero-emissions one, like an electric car. Furthermore, to stay exempt from VED after this first year, the vehicle would need to have a list price under £40,000. If the list price was above that threshold, a ‘Premium’ charge of £310 would need to be annually paid from the second year of ownership to the sixth.
3. Be careful when adding options to a zero-emissions car under £40,000
We’ve repeatedly used the phrase “list price”, but what actually is this price? It is defined as the car’s price before the addition of “on-the-road” charges like a new vehicle registration fee and delivery charge, plus fuel and number plates. Furthermore, it’s worth emphasising that it is the final list price that determines whether your vehicle crosses that crucial £40,000 threshold.
So, if you do seal the deal on a zero-emissions car priced beneath this figure, be wary of adding options that could lift the overall price higher than £40,000. What Car? warns that “an option costing a few hundred pounds could end up costing you more than £1,500 over five years in extra car tax costs.” This would remain the case even if the dealer provided a discount bringing the car’s price back down below £40,000, as this price would not be the list price.
4. Utilise clever tactics to cut your car insurance premiums
In November, the Chancellor of the Exchequer, Philip Hammond, announced that, from June, insurance premium tax would be increased from 10% to 12%. IPT, as this tax is otherwise known, is levied on roughly 50 million insurance policies, including those for car insurance. As a result, car insurance premiums will soon rise beyond £600, as The Guardian has reported.
However, as this tax is charged as a percentage of this premium before the tax, you can lower the payable amount of this tax by, quite simply, lowering your premiums. You can do this in a variety of ways – such as by adding a parent or spouse as a named driver or, peculiarly, fitting a tow bar to your vehicle. That practice could trim up to 20% off your premium.
When the time comes to renew your car insurance policy, you should shop around. Call Wiser can help you in this task – as, taking account of policies from more than 30 leading insurance providers in the UK, this Hampshire-based company can give you an attractive quote in a mere 10 minutes. It can significantly reduce the hassle of looking for a great policy.
Looking for more tips on saving on your car? Check out this article from This Is Money about reducing your car insurance premium.