02 November 2009 by Parkers Team

  • Lower diesel CO2 not always cheaper
  • New technology leads to petrol revival
  • Diesel could still be cheaper for companies

That last big shake-up for the company car tax rules was back in 2002.

Out went the old system of taxing on the car's P11D value and mileage and in came a system that charges according to a combination of CO2 and P11D value.

It was designed to encourage fleets and company car drivers to opt for more environmentally-friendly models.

Under these rules, diesels are treated slightly differently from petrol models and are subject to a further three per cent CO2 penalty (up to a maximum 35 per cent liability overall), despite emitting far lower CO2 than comparable petrols.

This is because when the rules were drawn up, many diesels still emitted many other polluting particulates. This three per cent levy was designed to take account of these.

This can make a crucial difference to company car choices. Diesels have lower CO2 and better fuel economy than petrols, but are often more expensive to buy (a £1000-£1500 premium is normal) and more expensive to fill.

Include the three per cent levy into those calculations and diesel doesn't always make sense.

The downside is that many companies operate a 'diesel only' fleet.

Check to see whether you can take the cash option if that's the case - you could save money by buying petrol with your own money.

What could really throw a spanner in the diesel works in coming years is the rise of supercharged and turbocharged engines, as seen with Volkswagen's 1.2 and 1.4 TSI.

These units use sophisticated turbo technology to bring emissions down to a level that almost competes with diesels.

As this technology improves, this new generation of petrols could become a smarter option to diesel. Using a turbocharger means that manufacturers can fit smaller engines to cars, thus reducing emissions.

The Skoda Superb, for instance, is available with a 1.4 TSI engine. That sounds incredibly small, and yet the performance is surprisingly sprightly.

It's been estimated by industry analysts Global Insight that 72 per cent of all cars sold by 2020 will have some form of turbocharger. It currently stands at just 24 per cent.

Case studies:

You're a 20% taxpayer with a £17,000 budget for a car. There's a choice of two similarly-priced models - one petrol, one diesel

Volkswagen Golf 1.6 TDI (105bhp) S 5d

119g/km/13% tax liability
List price: £17,035
Company car tax bill = £443.00, or £36.92 a month

Volkswagen Golf 1.4 TSI S 5d

144g/km/16% tax liability
List price: £16,125
Company car tax bill = £516, or £43 a month

Annual saving for lower-CO2 Golf = £73

 

You're a 40% taxpayer with a £37,000 budget for a car. There's a choice of two similarly-priced models - one petrol, one diesel

BMW 5-Series Saloon 530i SE 4d auto

182g/km/24% tax liability
List price: £31,527
Company car tax bill = £3454, or £287.83 a month

 

BMW 5-Series Saloon 530d SE 4d auto

176g/km/26%
List price: £36,330
Company car tax bill = £3778.40 or £314.87 a month

Annual saving for lower-CO2 5-Series = £254.60