Hikes to car tax rates from 1 April reveal huge stings for drivers

While Chancellor Jeremy Hunt spared motorists a huge rise in fuel duty in-line with inflation in his Spring Budget, he refused to put a freeze on the cost of Vehicle Excise Duty (VED) – or car tax – from 1 April 2023. 

The Budget document last month revealed that the government will ‘uprate VED rates for cars, vans and motorcycles in line with RPI’ – and with the Retail Price Index at 10.1 per cent, this translates to some major price increases for drivers.

And most car owners can expect to be stung by these hikes, including those with petrol, diesel and hybrid vehicles bought new in the last five years for more than £40,000 who will be hit with a massive increase in annual costs.

How do the new VED rises impact you? We have detailed all the changes based on the age of the car you drive…

 How will car tax hikes impact you in 2023? Find out how much extra – if any – in Vehicle Excise Duty you’ll be paying on your motor this year

I AM BUYING A BRAND NEW CAR REGISTERED AFTER 1 APRIL 2023

When motorists buy a new car, they are stung with a first year tax rate – also known as a ‘showroom tax rate’ – based on the CO2 emissions of the vehicle they purchase. 

After this first year showroom tax, owners will then have to pay a fixed-price standard tax rate (which you can find in the next section below).

The impact of the latest RPI hike has increased VED for every car buyer bar those purchasing fully-electric and plug-in hybrids vehicles that emit less than 50g/km CO2.

And some of the increases drivers will experience are significant.

For buyers of the latest petrol and diesel cars with carbon emissions up to 150g/km, they can expect pay between £5 and £60 more than they would have done before 1 April.

Anyone buying a new motor with CO2 emission above 150g/km will be forced to pay an extra £60 to £240, with the most polluting models clobbered by a first-year showroom tax rate of £2,605.

If you drive a diesel car that fails to meet the Real Driving Emissions 2 (RDE2) standards for nitrogen oxide emissions, there is a supplementary charge. You can ask your car’s manufacturer if your car meets the RDE2 standard, though the Gov.uk payment website will automatically identify this and apply the additional charge.

VED FIRST YEAR ‘SHOWROOM TAX’ RATES FOR CARS REGISTERED AFTER 1 APRIL 2023
Emissions (g/km) CO2 Petrol cars and diesel cars (TC49) that meet the RDE2 standard Annual increase All other diesel cars (TC49)  Annual increase Alternative fuel cars (TC59)  Annual increase
0 £0 £0 £0 £0 £0 £0
1-50 £10 £0 £30 £5 £0 £0
51-75 £30 £5 £130 £10 £20 £5
76-90 £130 £10 £165 £15 £120 £10
91-100 £165 £15 £185 £15 £155 £15
101-110 £185 £15 £210 £20 £175 £15
111-130 £210 £10 £255 £25 £200 £20
131-150 £255 £25 £645 £60 £245 £25
151-170 £645 £60 £1,040 £95 £635 £60
171-190 £1,040 £95 £1,565 £145 £1,030 £95
191-225 £1,565 £145 £2,220 £205 £1,555 £145
226-255 £2,220 £185 £2,605 £240 £2,210 £205
Over 255 £2,605 £240 £2,605 £240 £2,595 £240

I OWN A CAR REGISTERED BETWEEN 1 APRIL 2017 AND 31 MARCH 2023

If you own a car that was first registered between 1 April 2017 to 31 March 2023, the RPI hike will also translate to an increase in standard rate car tax, which is paid from the car’s second year onwards.

This has been upped by £15, rising from £165 to £180 for petrol and diesel models and increasing from £155 to £170 for ‘alternative fuel vehicles’ (hybrids and plug-in hybrids).

The standard rate of VED for zero-emission electric vehicles bought during this period is wavered, but EVs will face taxation from 2025 under new rules proposed by Mr Hunt last year.

As well as increasing the standard rate for vehicles with a combustion engine, there has also been a hike to the additional ‘premium’ rate tax on all models purchased after 1 April 2017.

This premium rate impacts all cars that cost more than £40,000 when they were new and is paid on top of the standard rate for five years (from year two to year six).

Motorists who spend over £40,000 on a new car are stung with an additional premium tax that impacts the amount of VED the pay for the first 5 years at the standard rate - this year, the cost of this premium tax has risen by £35

Motorists who spend over £40,000 on a new car are stung with an additional premium tax that impacts the amount of VED the pay for the first 5 years at the standard rate – this year, the cost of this premium tax has risen by £35

This premium tax was introduced in 2017 and has proven to be an unwelcome hit to the pockets of motorists purchasing larger models, particularly expensive SUVs.

For those drivers who bought a £40,000-plus car new after April 2017, they will be paying the premium rate on top of the standard rate from April 2018 to April 2022.

The cost of this ‘expensive car’ tax has risen from £355 last year to whopping £390 from 1 April 2022. 

That means if you drive a post April 2017 petrol or diesel car with a ‘list price’ (the published price before any discounts) of more than £40,000, you’ll be forking out a whopping £570 in standard rate tax this year, irrelevant of if it produces low CO2 or extremely high levels of carbon dioxide. 

Hybrid owners get a £10-a-year discount, meaning owners of £40k-plus models registered after 1 April 2017 will have to pay £560 this year. 

Electric car owners are currently exempt from this premium taxation for now, but likely won’t be from 2025 when EV owners are also forced to pay annual VED.

VED STANDARD RATES PAID FROM SECOND YEAR ONWARDS FOR CARS REGISTERED BETWEEN 1 APRIL 2017 TO 31 MARCH 2023
Fuel type  Standard tax rate for cars costing less than £40,000 Annual increase  Standard tax rate for cars costing more than £40,000  Annual increase 
Petrol or diesel £180 £15  £570 £50
Alternative fuel (hybrid)  £170 £15  £560 £50
Electric  £0 £0  £0  £0
*models with a ‘list price’ (the published price before any discounts) of more than £40,000 to pay an additional premium tax of £390 for the first 5 years of the standard rate

From 1 April 2023, drivers of vehicles registered over five years ago can expect to have to pay an extra £5 to £65 a year in car taxation 

I OWN A CAR REGISTERED BETWEEN 1 MARCH 2001 AND 31 MARCH 2017

For older petrol and diesel cars registered between March 2001 and March 2017, your vehicle will continue to be classified by lettered VED bands based on CO2 emission outputs.

The impact of the the latest RPI increase from 1 April impacts all cars in this age bracket with CO2 emissions in excess of 111g/km CO2.

Annual VED costs will rise between £5 and £65. 

It means the most polluting models with CO2 emissions over 255g/km will be forced to splash out £695 annually on car tax.

VED FOR CARS REGISTERED BETWEEN 1 MARCH 2021 AND 31 MARCH 2017 
VED Band CO2 emissions (g/km)  Standard rate* for petrol and diesel cars Annual increase Standard rate* for alternative fuel vehicles Annual increase
A Up to 100  £0 £0 £0 £0
B 101-110 £20 £0 £10 £0
C 111-120 £35 £5 £25 £5
D 121-130  £150 £15 £140 £15
E 131-140 £180 £15 £170 £15
F 141-150 £200 £20 £190 £20
G 151-165  £240 £20 £230 £20
H 166-175 £290 £25 £280 £25
I 176-185     £320 £30 £310 £30
J 186-200   £365 £35 £355 £35
K** 201-225  £395 £35 £385 £35
L 226-255 £675 £60 £665 £60
M Over 255  £695 £65 £685 £65
**Includes cars emitting over 225 g/km registered before March 23, 2006 

I OWN A CAR REGISTERED BEFORE 1 MARCH 2001 

If you own a car that’s more than 22 years old – registered before 1 March 2001 – you will also need to pay more in car tax this year.

VED for cars this old is split into just two bands based on engine size – up to 1.55 litres and over 1.55 litres.

For those in the lower group, the rise is £20 a year, up from £180 to £200. For the larger engine capacities, ministers have hit them with a £30 increase, rising from £295 to £325 from 1 April 2023.

VED RATES FOR CARS REGISTERED BEFORE 1 MARCH 2001 
Engine size Standard rate* for petrol and diesel cars  Annual increase 
Up to 1549cc £200 £20
Over 1549cc  £325 £30

I OWN A CAR THAT’S OVER 40 YEARS OLD

Under VED rules, any car that was registered over 40 years ago is no longer hit with car tax.

That means all cars registered before April 1983 is already eligible for ‘historical vehicle taxation’ exemption. 

However, it is important to note that it is a vehicle keeper’s responsibility to apply to the DVLA for a vehicle tax exemption so they can issue an updated log book to clarify that the car is eligible for charge-free historic vehicle tax.  

You can find how to apply for historic vehicle tax on the Gov.uk site.

CARS & MOTORING: ON TEST

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