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Updated: 12 Mar 2020

Car tax changes: most new car owners will pay more tax from April

But electric car owners, new and existing, will now be excused from 'expensive car' penalty, saving many £1,600 over five years

In the market for a new car? The rate of tax that many new car owners will pay is set to rise, so buy before April to (potentially) save yourself some money.

Unless, of course, you're buying an expensive electric car, in which case you're going to save £1,600.

Clear as mud? Then read on - we've wrangled with the latest changes to car tax rules to bring you the low-down on what they mean for motorists.

Car tax changed completely in 2017 and has been amended several times since. Cut through the confusion and find out what you'll pay in our guide to car tax.

First-year car tax to increase for all but zero-emission cars

As of April 2020, the amount of carbon dioxide (CO2) that most cars officially produce will go up.

It's not because your car has suddenly become more polluting, but rather because the way CO2 is measured has changed, to make the tests more reflective of real-life driving (see below for more on why and how the tests are changing). This will increase official CO2 values.

The amount of CO2 a car emits in official tests dictates how much car tax you pay in the car's first year of ownership. This is called the 'first-year rate'.

So if the increase in official CO2 emissions pushes your car into the next band of car tax (take a look at our car tax explained guide), you'll end up paying more.

Zero-emissions cars - including all electric cars - are exempt from car tax.

How much more first-year car tax will I pay?

If the CO2 measurement rise isn't enough to move a new car to the next band of tax, the amount you pay won't be affected. But, if the increased CO2 pushes your first-year car tax band up by a single bracket, the extra amount you could pay ranges from as little as £20 to a rather more weighty £535.

On average, the difference between tax bands is just shy of £200. When weighed against the cost of a new car, it's not a tremendous amount of money. And as the first year of car tax is typically wrapped into the car's 'on the road price', in practice prospective car owners are unlikely to notice the rise.

Will I pay more tax after the first year?

After the first year, all new car owners go to one of three rates, called the 'standard rates'.Rather than being CO2 dependent, what you pay is purely dependent on the fuel type:

  • £145 per year for petrol and diesel cars
  • £135 for alternative fuel cars, such as hybrids
  • £0 for zero-emission cars (electric or hydrogen fuel-cell vehicles)

These standard rates, which apply to all cars first sold on or after 1 April 2017, are not affected by changes to CO2 measurements.

Buyers of expensive electric cars to pay £1,600 less tax

Arguably more financially significant than the change in CO2 measurements is the announcement in today's Budget that new electric cars costing more than £40,000 will no longer be subject to the 'expensive car' supplement.

Usually, if a car costs £40,000 or more when it is first sold, it's subject to an additional car tax of £320 a year for five years from the second year of ownership. The way it works sounds complicated, but the bottom line is that buyers pay an additional £1,600 over five years.

Zero-emission car owners have always been exempt from first-year and standard car tax, but still had to pay the expensive car supplement if their car cost £40,000 or more.

However, the Chancellor of the Exchequer announced in today's Budget that, as of 1 April 2020, new electric car owners will no longer be subject to this rule.

How does this affect existing electric car owners?

UPDATE: A spokesperson for the Treasury has confirmed that existing EV owners will also now be exempt from the £40,000 expensive car supplement.

That's great news for those who invested in an expensive electric car in the last year, such as Tesla's Model 3, which was the third best selling car in August in 2019 (sales figures from the Society of Motor Manufacturers and Traders).

The exemption is due to last until 31 March 2025.

The change in CO2 measurements and car tax: NEDC to WLTP

Increases in measurements of the CO2 a car emits are the result of changes to the official test. Instead of the previous unrealistic (and much-criticised) 'New European Driving Cycle' (NEDC), the more realistic 'Worldwide-Harmonised Light vehicles Test Procedure' (WLTP) is now used.

NEDC CO2 values

The NEDC test didn't strain the car, and was open to a number of potential loopholes, including:

  • The test is conducted with air conditioning, lights and heated windows off, thereby improving efficiency and reducing CO2.
  • There is a tolerance for the testing to be carried out at 1.2mph below the required speed, meaning less fuel is used.
  • Roof rails, extra lights and even the door mirror on the passenger side are allowed to be removed. This makes the car lighter and, therefore, more fuel-efficient.

As the car was not strained, and manufacturers may have used these loopholes (and many more) to get better fuel economy, it meant that official CO2 values were kept artificially low.

As first year tax is based on official CO2 rates, it means we have technically been paying more favourable rates than we should have done.

WLTP CO2 values

With support from our own 'Come clean on fuel claims' campaign, new generations of cars released after 1 September 2017 are now tested using the WLTP (Worldwide-Harmonised Light vehicles Test Procedure). All remaining new cars have had to go through the WLTP as of 1 September 2018.

The WLTP closed all the known loopholes with the NEDC and is a much tougher cycle (although not as tough as Which? lab tests - see below). This means that fuel economy and CO2 figures from this test are higher and more realistic.

Despite this new test being introduced in 2018 for all cars, the CO2 figures you see in car brochures and dealerships - and which are used to set first-year tax rates - are the WLTP CO2 figures converted to NEDC figures. That means we've continued to pay tax rates based on lower-than-realistic CO2 measurements.

But that comes to an end this month. As of April 2020, CO2 values displayed in brochures and used to set first-year tax rates for new cars will be the direct WLTP results.

CO2 emissions in Which? tests

We've found that the latest cars released by manufacturers are producing more CO2 than the models they replace, not less.

That's based not on official CO2 tests, but on our own independent tests that go further and are even more reflective of real-life driving than the new official assessments, for example by taking motorway driving into account.

Our guide to low-emission cars reveals everything you need to know about what comes out of your car's exhaust. The guide includes our free emissions tool, where you can look up any car we've tested and see what really comes out of its tailpipe.