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The New Diesel Tax Changes Explained

By Amanda | 11-04-2018

From April 2018, car tax for older diesel cars increased in the UK, but how does this affect fleet operators? Below is a short guide on the changes that have now been put in place.

Vehicle Excise Duty (VED)

The government announced in the Autumn Budget 2017 that it would be increasing car tax on some diesel cars from April 2018 in a bid to dissuade motorists driving older diesel cars and improve the general air quality in the UK.

Company car owners running diesel cars that do not meet the Euro 6 emissions standard, will now be required to pay a band higher car tax than they currently do.

Below is a table outlining the car tax bands from April 2017 and the increased rate for April 2018.

BIK surcharge increase

In addition, the Benefit-in-Kind (BIK) surcharge of 3% has been increased to 4% this month. This means that more than 800,000 drivers of diesel company cars, including the latest Euro 6 models, ›will pay out £70 million extra in diesel company car tax in the tax year running from 2018-2019.

The BIK surcharge on diesel company cars (but not diesel hybrids) will be applied to all cars unless they meet the Real Driving Emissions Step 2 standard (RDE2), which comes into play and affects new car models from September 2018 onwards, and which applies to all new registrations from September 2019.

Why has the RDE2 test been introduced?

One of the requirements for new cars to pass the current Euro 6 emissions testing is that they must emit less than 80mg/km of toxic nitrogen oxides (NOx), but some cars that have passed the lab tests have actually gone on to emit more than 80mg/km in the real world - the new RDE2 test is designed to eliminate this discrepancy.

At present, it is estimated that no diesel cars currently on UK roads will be exempt from the increased surcharge as few, if any, will meet the RDE2 standards between 2018-2019. This means that approximately 800,000 drivers will pay out more tax.

The future for diesel cars

The government predicts that the new VED charges will have little impact on driver behaviour in terms of choosing a diesel car due to the “low level of the tax increase in relation to car purchase price”.

With around 350,000 company car drivers replacing their cars every year, most of the affected drivers will have the opportunity to choose new cars that are not subject to the supplement.

The government estimates the tax rise will raise an additional £125 million in 2018/19, reducing to £50 million in 2019/20 and £10 million in 2020/21. The additional money raised will be used for a clean air fund to help local authorities meet clean air targets.

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