As we all know, since last Friday 1 May, the new car tax rate and VED applied on vehicles registered on or after 1 March 2001.

The new vehicle tax rates only applies to cars that have been type approved in category M1 and registered on the basis of CO2 emissions measured in g/km driven, in other words the lower the car’s CO2 emissions the lower the tax payable on it.

This means that cars with extremely low CO2 emissions will be exempt from taxes, while gas guzzlers could be paying fees as high as £405. For 2009, no one will have to pay more than £5 extra for their car tax but from April 2010 the highest polluters will paying extra £30.

While polluters get an increase on their car tax rates, greener car owners will see no change or a possible £30 reduction on April 2010 and alternative fuels cars will continue to receive a small discount with these price changes. The government hopes to incite people to think more about the CO2 emissions than on power when buying a car.

You can find detailed information on how much car tax you’ll have to pay on Audi Nationwide Company Car Tax Page.

The Chancellor Alistair Darling announced yesterday that the planned increases in VED will be delayed and also brought in more slowly than had been initially planned.  The highlights of the pre budget report are:

• From April 2009, six new bands of VED will be introduced, taking the total from seven to thirteen. However, VED rates will not increase by more than £5 for any car in this year;

• From April 2010, in order for the new bands to create an environmental incentive, the Government will start to separate out the 13 differential rates.  As a result, cars below 150 g/km will see a real terms cut in their VED, of up to £30. Cars up to 175 g/km will see no real terms increase in their VED. Cars 176 g/km and above will see a tax increase of between £20 and £30;

• From April 2010, a differential First-Year Rate for new vehicles will be introduced as announced in Budget 2008, in order to provide a stronger signal for consumers at the point of purchase;

• Cars that emit over 225 g/km, but were registered between 1 March 2001 and 23 March 2006, will be moved into the new band K in 2009 and stay there in 2010. This will mean that they maintain their exemption from the top rate of VED.

• For Cars Registered before 2001 it was announced that in 2009 the lower rate of VED for these vehicles would be frozen and the higher rate would be increased by £15. In line with the changes to main VED rates, this change will be postponed for a year, and on 1 April 2009 both rates will instead increase by £5. These rates will also apply to light goods vehicles registered before 2001.

The report says:

As a result of these reforms to graduated VED, no driver in any given band will pay more than £5 extra in 2009. In 2010-11, when more significant rate changes are introduced, a majority of drivers will either pay less or the same as in 2009. When the Government introduces First-Year Rates for newly purchased cars in 2010, new cars under 130 g/km will pay no VED at all in the first year of use, whereas the very highest emitting cars will pay £950. The full set of rates is set out in Table 7.1 below.

Table 7.1

*Alternative fuel discount: 2009-10, A-I £20, J-M £15; 2010-11 onwards, £10 all cars
** Includes cars emitting over 225g/km registered between 1 March 2001 and 23 March 2006

The full report can be found on the Budget minisite here.