Ask the expert: Why must we pay a higher rate of car tax?
Dear Alex,
When we ordered our Toyota RAV4 in 2022, we had intended to get a 4x4 model, but in the end opted for a two-wheel-drive to bring the new cost below £40,000 and thereby be liable for the lower road tax. The car was eventually delivered 13 months after the order was placed; our dealer honoured the original price, due to delays caused by the war in Ukraine. One year after delivery we were charged vehicle excise duty (VED) by the DVLA at the higher rate. Both Toyota and the DVLA say nothing can be done because the list price at the time of delivery was indeed over £40,000. If so, we would surely have specified the car with four-wheel drive as originally intended. Is this right?
– AC
Dear AC,
You have been caught out by a loophole in the current car tax (VED) laws, which an increasing number of drivers are also experiencing. What's happened is that you ordered the car at one price, yet by the time it has been delivered, Toyota adjusted its prices to keep pace with inflation, taking the list price for your model over the £40,000 'luxury tax' threshold.
A manufacturer increasing the list price while a car is on order is, of course, nothing new. Usually, it's dealt with by the dealer applying a discount to bring the price down to the amount agreed when the car was ordered.
However, the rules are very clear about which price your car's tax rate is to be based on – it's the list price at the time of delivery. In other words, the price you agree when you order the car is irrelevant to the DVLA.
And while it will happily take optional extras into account if they bump that list price above the £40,000 threshold, it won't do the same with discounts that take the price below it.
For example, if you order a car costing £39,000 but its list price is £41,000 by the time it's delivered, you'll still be taxed at the higher rate – even if the dealer takes off £2,000 to match the price you agreed.
And there is nothing you can do about it, I'm afraid. It's just one more unintended consequence of the current, rather daft new car VED system. For any other readers hoping to order a car whose list price falls just below the £40,000 threshold, yours is a salutary tale.
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