Rates are indexed each year in line with RPI inflation (subject to any pre-announced policies) and rounded to either the nearest £1 or £5, depending on the tax band. Receipts are calculated by multiplying the stock of vehicles by the appropriate duty rate. The forecasting model is based on DVLA data covering the entire vehicle stock, enabling vehicle types to be disaggregated into the many different VED bands. This process allows the BRC to refine the assumptions and judgements that underpin the forecasts before they are published in our Economic and fiscal outlooks ( EFOs). These are scrutinised in a challenge process that typically involves two rounds of meetings where HMRC analysts present forecasts to the Budget Responsibility Committee and OBR staff. We provide HMRC with economic forecasts that are used to generate the tax forecasts. The forecasts start by generating an in-year estimate for receipts in the current year, then use a model to forecast growth in receipts from that starting point. The OBR commissions forecasts of VED receipts from HM Revenue and Customs for each fiscal event. VED receipts as a share of GDP then start rising gradually from 2025, when EVs become liable to pay VED. After an uptick associated with the pandemic-related reduction in GDP in 2020-21, another uptick is expected in 2023-24 due to high RPI. This meant VED receipts fell gradually as a share of GDP. As a result, as vehicles became more efficient and the uptake of EVs increased, the proportion of vehicles exempt or in the lower-taxed bands rose, reducing growth in VED receipts. Under the regime prior to April 2017, VED bands were linked exclusively to fuel efficiency. While VED receipts have been on an upward trend in cash terms over time, they have fallen as a share of GDP. the amount of tax raised per unit of the tax base). whether the number of vehicles increases faster or more slowly than national income) and changes in the effective tax rate (i.e. Movements in this ratio can be thought of in two parts – movements in the tax base relative to national income (i.e. Receipts as a share of GDP is the most relevant metric when considering the sustainability of the public finances. In cash terms, both receipts and GDP will tend to rise over time because of economic growth and inflation. Trends in receipts as a share of GDP are useful to understand how they move in line with the underlying economic activity that is being taxed. But without putting the cash amount into context – by asking how much national income is available to be taxed – interpreting changes in cash receipts is difficult, particularly over long time periods. Receipts measured in cash terms are a simple metric for analysing trends over time. That represents 0.7 per cent of all receipts and is equivalent to around £284 per household and 0.3 per cent of national income. We forecast that VED will raise £8.0 billion in 2023-24. The luxury supplement exemption for EVs is also due to end in 2025. A similar change applies to zero-emissions vans and motorcycles. VED information on new or used cars can be found using the Vehicle Certification Agency’s online tool.Įlectric vehicles (EVs) are currently exempt and drivers of EVs pay no VED, but from 2025, EVs first registered on or after 1 April 2017 will be liable to pay the lower rate in the first year (that which currently applies to vehicles with CO 2 emissions of 1-50g/km) and the standard rate from the second year of registration onwards. Some drivers may also have to pay a luxury supplement if they drive a car with a ‘list price’ of more than £40,000. More information can be found on the gov.uk website.įor the second-year payment onwards, most drivers pay a fixed rate of £165 regardless of the CO 2 emissions of their vehicle. Drivers of less fuel-efficient cars pay more, up to a maximum of £2,365. For cars registered from April 2017 onwards, first-year VED payments are related to CO 2 emissions, but subsequent payments are not.ĭrivers of relatively fuel-efficient petrol or diesel cars (up to 50g/km CO 2) typically pay up to £25 for the year when they first register the vehicle, depending on the car’s official CO 2 emissions. For most cars registered prior to April 2017, the amount of VED due depended primarily on the car’s official CO 2 emissions. Vehicle excise duty (VED) is a tax levied on every vehicle using public roads in the UK and is collected by the Driver and Vehicle Licensing Agency (DVLA).
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