Does Budget 2020 price UK car imports out of the market?

The Budget 2020 tax on emissions of nitrogen oxide has the potential to be a game-changer for the Irish car trade, and for where and how we buy our cars.

For most new cars, the charge will be pretty small – a matter of a few hundred euro on the price, an amount easily absorbed by many buyers, especially those whose budgeting is done by looking at the monthly repayments, rather than the outright list price.

But if you’re thinking of buying an imported secondhand car, rather than new or secondhand cars from sources in the Republic, the equation could be different. That’s because the NOx charge is levied at the time the car is first registered in the Republic.

Ever since Britain voted for Brexit, the battering sterling has received has proved a boon for Irish car buyers. Along with the softening of UK used car values in the wake of the diesel scandal, it has seen Irish buyers flocking to the UK to snap up secondhand bargains.

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Savings of as much as €10,000 – even allowing for the hefty vehicle registration tax (VRT) – are not uncommon. So far, this year alone, 72,000 people have shopped for their car in the UK, rather than at home. It's been a punishing time for Irish dealers, but that could, just possibly, change thanks to the NOx tax.

NOx, or nitrogen oxide, is a gas produced by combustion engines. Diesels, generally, produce more of it than petrol engines. And while it’s not a climate-change gas like carbon dioxide (CO2), it is a public health hazard, known to cause respiratory illness and blamed for 10,000 deaths across Europe each year.

Diesel emissions scandal

It’s the gas at the centre of the diesel emissions scandal, so the new tax is meant both to benefit air quality and health and put a brake on the imports of older diesel models from the UK.

The tax is charged on a sliding scale, based on the emissions a car generates, measured in milligrammes per kilometre (mg/km). For the first 60mg/km of NOx emissions, you’ll pay €5 per mg/km – that is, up to €300. For emissions from 61 to 80mg/km, you’ll pay €15 – a potential bill of €600. Above that level it’s €25 per milligramme.

And that’s where it can get very expensive to opt for an older, imported car. Any car that conforms to the Euro6 emissions regulations, which came into force in 2015, will have maximum NOX emissions of 80mg/km. But the previous emissions regulation, Euro5, had a maximum level of 180mg/km. That could add a significant amount of extra cost to importing a car.

Of current imports, some 15 per cent are five years old. Taking the top three imported models of that age – the Volkswagen Golf, the Ford Focus, and the Toyota Prius – it's immediately obvious which cars are going to lose out.

A 2014 Golf 1.6 TDI diesel would retail in the Republic for about €12,000. The same car can be bought in the UK for about £8,000 (€8,880). Revenue will add roughly €1,880 in VRT to that, bringing the purchase price up to €10,760.

From January 1st, 2020, the NOx tax will add a chunky €1,510 to that price – given the car’s emissions of 118mg/km. That would bring the total, notional, price to €12,270 – wiping out the price advantage of shopping in the UK.

That won't be the same across all models, of course. For instance, a 2014 BMW 520d has NOx emissions of just 17mg/km, so would only be charged €85. The Toyota Prius, from the same year, has NOx emissions of just 8mg/km, equating to a NOx charge of €48.

By contrast, a 2014 Ford Focus 1.6 TDCI diesel would be charged a whopping €2,385 in extra NOx tax, on top of the approx €1,500 of "regular" VRT to import.

Important

Knowing your NOx is going to be important. And that’s not easy. NOx figures vary from model to model and year to year.

The best sources are the UK government's vehicle certification agency, and the independent Emissionsfinder. com, but neither is an exhaustive source.

Ultimately, the only number that matters is the one on the car’s certificate of conformity, as that’s the number that Revenue will work from to apply the tax. If one does not come with your purchase, you’ll need to apply to the UK distributor who will send you a copy for a small charge.

Will it be enough to change the game on imports? Possibly.

The newer the car, the cleaner it is and so the less effect the NOx tax will have. And sterling, whose exchange rate remains the other key factor, is unlikely to make any dramatic gains in value as long as Brexit continues to swirl.

Irish car dealers will be holding their breath between now and January that the mere fact of an extra tax will be enough to deter many shoppers from venturing cross-Border.