Tens of thousands of drivers have made the switch to diesel in a bid to cut their tax bills after the Government introduced the new carbon dioxide-based benefit-in-kind tax system. But while drivers may be saving money, fleet operators could see their leasing bills and running costs rising, because in some cases, cleaner diesel models can be more expensive to run.
The drive to diesel among employees was sparked because the current tax system rewards drivers who use low emission cars by cutting their tax bills. Drivers pay tax on a percentage of the value of their company cars. The percentage is based on the amount of CO2 emissions each car produces and because diesels are well-known for emitting less CO2, it generally means a lower tax bill. This is despite a 3% tax penalty for drivers, unless they opt for models that meet Euro IV emission requirements.
But experts suggest that this saving for drivers is a false economy for employers.
Many companies that lease vehicles have found the monthly rental for a diesel is higher than that for its petrol equivalent.
As a result, the company has to offset the extra cost of the lease against any fuel savings made.
The problem is made worse if the driver is on a set mileage rate, because the company doesn’t benefit from any fuel savings achieved by the driver’s choice of engine.
This week, Lex Vehicle Leasing urged companies to look at all elements of running their vehicles before ruling out petrol engines. In many cases, fleets are now 100% diesel, while manufacturers with key fleet models are seeing more than 70% of sales fitted with heavy-oil engines.
Lex research took a range of petrol and diesel scenarios and looked at elements of purchasing the car, fuel consumption, residual value and driver benefit-in-kind taxation, before comparing overall running costs and monthly leasing rates.
Brian Farrell, Lex Vehicle Leasing’s pricing risk manager, said: ‘In many cases, the leasing rate for a diesel car is higher than the equivalent petrol as they are more expensive to buy and the comparative residual value against a petrol model is identical. Our advice is to compare the figures before making a decision.’