Budget confirms Diesel cars will face hikes in VED and Company Car Tax from April 2018

Diesel cars will be subject to increases in Vehicle Excise Duty and Company Car Tax from next April, confirmed in the 2017 Budget, as the Government looks to tackle air pollution in the UK.

Announced eight months after a new tax regime was mooted, both changes are applicable to all diesel cars that are not certified to meet the Real Driving Emissions step 2 standard (RDE2), which comes into place in January 2020 – meaning that all fleets running diesel cars will be hit by the increased charges for several years to come.

From April 2018, the Company Car Tax diesel supplement will go up by one percentage point from April 2018, increasing it to 4% for cars not meeting the RDE2 standard. Vehicles that do adhere to the standard will have the diesel supplement removed altogether, although no such vehicles are currently available. As well as hitting company car drivers, the move will also impact on fleets through Class 1A NICs.

For VED, the new levy will see the first-year VED rate for all diesels that don’t meet RDE2 go up by one band from April 2018, potentially adding £500 for higher-emission vehicles. The changes will be consigned to cars, with the chancellor spelling out that ‘White Van Man and White Van Woman’ will not be impacted.

Increasing the diesel supplement is calculated to raise an extra £70m in the first year and £35m for 2019/20, while changes to first-year VED rates are projected to bring in an extra £125m for 2018/19 and £50m the following year. The tax take from both measures will fund a new £220m clean air fund to provide support for the implementation of local air quality plans, improving of the quality of the air in cities and towns up and down the UK.

As already outlined, the changes will impact on all diesels that are not RDE2 certified – ie all diesels currently on sale. Although the RDE test kicked in for all new car type approvals from 1 September 2017 – running alongside the WLTP (Worldwide Harmonised Light Vehicles Test Procedure) to provide a real-world element in the final figures generated for each car – the RDE2 test (which tightens the conformity factor on how far emissions can exceed the regulations on NOx emissions on any possible RDE trip) doesn’t come into effect until January 2020.

Despite the introduction to the new WLTP test regime, which came into force in September, HM Revenue and Customs confirmed that VED and Company Car Tax will continue to be based on the computer-generated NEDC figures until April 2020.

Speak to our fleet specialists on 01628 899720 for further advice about the budget’s impact on fleet costs.