Don't get caught by Showroom Tax

This April sees the introduction of a car tax that most people had forgotten about: First Year Rate VED. It was announced back in Budget 2008, but finally comes into force today, 1 April. It's designed to encourage buyers to choose the most fuel-efficient cars they can and is based on CO2 bands that were introduced in 2009. It works on a sliding scale, rewarding the buyers of low CO2 cars and punishing those with higher emissions.

Buyers of large 4x4s, big family cars and people carriers have the most to fear from the new tax. These cars tend to fall in Band G and above. That's important, because it's buyers of cars in Band G and above that pay extra on top of the usual Road Tax rate. Buyers of cars in Bands A-G pay less than the usual 12 month rate or the same amount.

Anyone ordering a new car has now left it too late to dodge the tax - it's a case of pay-up or buy something more efficient. But the tax doesn't apply to nearly-new pre-registered cars on the latest '10' registration plate with delivery miles. And there are plenty of them up-and-down the country's car supermarkets for canny buyers prepared to shop around.

Some top picks...

One example is the Volvo XC90, a Band K car that's saddled with £550 of First Year Rate VED. At one of the UK's leading car supermarkets, this car is available on a 10-plate with delivery miles - so is new in all but name - and as it's already registered, it dodges Showroom Tax, making a £305 saving. Plus it's being advertised with up to £3000 off the list price.

Small car buyers - typically those in Road Tax Bands A-D - benefit from no VED in the first year, while those in Bands E, F and G pay as much as they would in a standard year. Last year one-in-five of all cars sold fell into the 131-140 g/km Band E. There's no saving here, but there's no extra charge either: Band E buyers pay the same £110 charge in the first year as they would any other time.

And there's no doubt about it - cars are getting cleaner and they're getting cleaner faster. Cleaner means cheaper, too. BMW's new 5-Series is available in Road Tax band E as a 520d, emitting just 132 g/km CO2, down from 158g/km. That means there's no Showroom Tax to pay and it costs just £110 per year to tax - there are some Nissan Micra owners paying exactly the same.

Picking out the models that this rule applies to is really worth doing - just check on the honestjohn Road Tax website. And remember, brand new isn't always best.
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