Background Note
27.VED was reformed in 2001 when a carbon dioxide (CO2) emissions based system was introduced for cars registered from 1st March 2001 onwards. This is part of the Government’s policy to use transport taxes to create incentives for the reduction of emissions. Cars and vans registered before 1 March 2001 are treated for VED on the basis of engine size, and are charged the general rate of VED. Vans registered on or after 1 March 2001 are treated for VED according to whether they qualify for a reduced rate by having met reduced pollutant emissions standards early. These standards have been agreed at a European level and are intended to improve air quality.
28.The reduced rate of VED for post-2001 cars under Subsection (3) applies to cars using alternative fuels or featuring a hybrid fuel-electric powertrain. Alternative fuels include Liquefied Petroleum Gas, Compressed Natural Gas and high blend (85 per cent content) bioethanol.
29.For 2010-11 the Government intends to introduce First-Year Rates of VED payable on a first vehicle licence for a new car. Cars emitting up to 130g/km of CO2 will be exempt from VED on a first vehicle licence in 2010-11. Cars emitting between 131 and 165g/km will pay the same rate of VED on their first vehicle licence as on all subsequent licences. Cars emitting over 165g/km will pay a higher rate on the first vehicle licence than on subsequent licences, up to a top rate of £950. The intention is that first vehicle licence rates should apply only to brand new cars and almost new imported used cars.
30.For other cars already registered on or after 1 March 2001 to which first vehicle licence rates will not apply, the Government intends to apply increases and decreases of up to £30 depending on the CO2 emissions of the car.
31.The Government intends to maintain the exemption from the top rate of VED for cars that have a CO2 emissions value which exceeds 225g/km but were first registered before 23 March 2006, as provided for by Subsection (7).
32.In 2010-11, the Government intends to increase by £15 the rates for larger engine size (over 1549cc) pre-2001 cars and the standard rate for post-2001 vans (those that are not lower-emissions vans). The changes in rates apply to all vehicle licences taken out on or after 1 April 2010 regardless of the commencement date of the licence.
33.For 2010-11 the Government intends to introduce First-Year Rates of VED payable on a first vehicle licence for a new car. Cars emitting up to 130g/km of CO2 will be exempt from VED on a first vehicle licence in 2010-11. Cars emitting between 131 and 165g/km will pay the same rate of VED on their first vehicle licence as on all subsequent licences. Cars emitting over 165 g/km will pay a higher rate on the first vehicle licence than on subsequent licences, up to a top rate of £950. The intention is that first vehicle licence rates should apply only to brand new cars and almost new imported used cars.
34.Six-month licence rates are generally available where an annual rate of duty on a vehicle licence exceeds £50, and are chargeable at 55 per cent of the annual rate. Paragraph 2(3) of this Schedule provides an exception in the case of certain first vehicle licence rates for cars. The exception is intended to remove the possibility of paying less than the full annual rate of duty on a car’s first vehicle licence by taking out a six month licence as the first vehicle licence.
35.VED rebates are available to registered vehicle keepers on any unexpired complete months remaining on a vehicle licence, where the registered keeper’s circumstance is one of those set out in section 19 of VERA. Paragraph 3 of this Schedule provides an alternative method of calculation for refunds, in the case of first vehicle licence rates for cars where the licence rate for a subsequent licence is lower than the first vehicle licence rate, and in the case where the refund is for a licence on a vehicle that has been sold, exported or has a Statutory Off-Road Notification in force. This method of calculating the level of refund has been adopted to remove the possibility of paying less than the full annual rate of duty on a car’s first vehicle licence by taking a refund on the first vehicle licence which is at a higher rate than the rate that would apply in relation to a subsequent licence.
36.A first vehicle licence is the licence on the issue of which a vehicle is first registered in the UK, except for the exception inserted by paragraph 4(3) of this Schedule. This exception is intended to remove the possibility to pay less than the full annual rate of duty on a car’s first vehicle licence over a twelve month period by importing an almost-new car into the UK. The intention is to use an existing definition of what constitutes a new vehicle, which has been translated from the Value Added Tax Act 1994 (section 95). This defines a car as new unless more than six months have elapsed since its first entry into service and it has travelled more than 6,000 kilometres under its own power. Imported cars not considered to be new according to this definition will not be issued with a first vehicle licence and will not be charged associated First-Year Rates of duty.
37.With effect from 1st April 2010, periods of registration outside of the UK will be taken into consideration for licensing purposes, for vehicles imported into the UK on or after 23 March 2006. This change is intended to ensure that vehicles pay similar rates of duty, whether or not they were first registered in the UK, subject to paragraph 4(3) of this Schedule.
38.Cars emitting below 130g/km of CO2 will be exempt from VED for the period for which the first vehicle licence would otherwise apply. For subsequent licences the threshold for the exemption changes to 100g/km.
