The tax change takes effect tomorrow (1 April) and could cost new car buyers up to £83.5m in extra tax payments.
Go.Compare Car Insurance has warned that drivers buying new cars this year might not fully understand the costs involved.
What is VED?
VED – or ‘road tax’ – is the yearly charge for all vehicles that use public roads.
How much it will be varies, depending on the car’s environmental impact and when it was first registered. Drivers who buy a brand-new car usually have to pay an additional ‘first-year rate’ for the first 12 months they own the vehicle.
First-year rates significantly increase from the start of April, with the cost of some tax bands doubling. This means drivers who buy a new car are likely to pay much more tax than they are used to.
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Go.Compare Car Insurance warned that drivers who buy a new car between April and September will pay an average of £418 more tax than last year, although the increase could be in the thousands for some buyers.
Tax changes in April
From tomorrow (1 April), drivers of electric vehicles (EVs) will no longer be exempt from paying VED. EVs registered after 1 April 2025 will be liable for a first-year rate of £10 until 2029. EVs registered between 1 April 2017 and 31 March 2025 will now have to pay the same standard rate of road tax (£195 per year) as all other motorists.
Drivers of EVs costing more than £40,000 will also have to pay the £425 per year ‘Expensive Car Supplement’.
From tomorrow, all cars emitting 1-50g/km of CO2 (including most plug-in hybrids) will see the first year’s tax bill rise to £110. Previously, hybrids in this band paid zero VED in the first year, while petrol and diesel cars paid £10.
New cars emitting 51-75g/km of CO2 will see car tax increase from £30 (or £20 for hybrids) to £135.
Also from tomorrow, the flat-rate cost of car tax will be £195, but you may pay a different rate if your car was registered before 2017.
Lack of awareness
A survey by the price comparison site found that women displayed an especially low level of awareness of the changes in the survey. It found that just over a third (39%) of women know about the VED increases, compared to 58% of men.
Younger drivers are also less aware of the changes. Around one-quarter (24%) of drivers under 25 said they knew about the rises, compared to roughly a third (34%) of 25-34-year-olds and half (49%) of 40-59-year-olds.
Older motorists had the highest awareness, with nearly two-thirds (62%) of over-60s stating they knew about them.
CO2 and tax bands
The vast majority of drivers (83%) also stated that they don’t know their car’s CO2 output – a key factor in determining its tax band.
Women and younger drivers were also less likely to know this. Around a quarter (26%) of male drivers said they knew their car’s CO2 output, compared to 8% of women. Similarly, only 7% of drivers under 25 said they know this, compared to a fifth of 40-59-year-olds.
Tom Banks, car insurance expert at Go.Compare, said: “The increase in first-year rates for VED could mean a substantial tax rise for anyone who decides to buy a new car this year. It’s imperative that drivers are aware of this before they head to the showroom, or they could end up choosing a car that comes with a tax bill that they can’t afford.
“The increases apply to new cars and are based on CO2 output, so if you want to avoid them altogether, buy a ‘nearly new’ car that’s just a few years old instead. Or, if you’re set on a new vehicle, consider a low-emissions car, as that will place you in the cheaper tax bands.”
