Diesel: Is it the right choice for your company cars?

When choosing the best fuel for your fleet, you may be tempted to steer away from diesel, due to its negative associations with environmental damage and pollution. There’s also the high cost of diesel to keep in mind. With the sale of new diesel vehicles due to be banned by 2030, you wouldn’t be alone in thinking twice about investing in a fleet that uses this fuel.

According to data from the Society of Motor Manufacturers and Traders (SMMT), diesel cars sales saw a drop of 17% in 2017, with that trend continuing in 2018 and looking set to carry on in 2019 too.

Conversely, it seems that petrol and hybrid cars are increasing in popularity. According to data published by the European Automobile Manufacturers Association (ACEA) 53.3% of new passenger cars were fuelled by petrol in the UK in 2017, while hybrid electric vehicles made up 2.9%.

So which fuel should your company cars use: petrol or diesel?

However, choosing which fuel to run your fleet on is a big decision, which will likely have a considerable impact on your business operations and finances – not to mention the environment.

We’ll provide more information about diesel fuel, and offer advice on what to take into consideration when making your decision between petrol or diesel company cars.

In this article, we’ll cover:

1. What differentiates diesel from petrol and hybrid powered vehicles?
2. Which factors influence fuel costs?
3. How are vehicles tested?
4. What are the effects of the changes to fuel and emissions testing?
5. The impact on tax
6. Diesel vs petrol: Pros and cons

1. What differentiates diesel from petrol and hybrid powered vehicles?

A survey of UK firms carried out by RAC Business found that 33% of small businesses (those with 10 or fewer employees) are considering phasing out diesel vehicles. When looking at businesses of any size, nearly half (47%) say they are thinking about moving away from diesel powered vehicles.

But could your business benefit from powering its fleet with diesel? Some possible benefits include:

• Suitability for long distance journeys
• Lower carbon dioxide emissions (CO2)
• More economical fuel consumption
• Improved air quality emissions in newer models that meet the Euro 6 emissions standards (compared to older diesel vehicles)

However, according to RAC Fuel Watch spokesman Simon Williams, many new diesel vehicles perform significantly better in terms of nitrogen dioxide emissions than their predecessors – and even some older petrol vehicles.

He added: “During 2017, there was a lot of debate about emissions from diesel vehicles being harmful to health, and the possibility of charges being introduced for certain vehicles in some cities to combat the issue. This has undoubtedly affected attitudes among consumers and fleets, and left them uncertain as to what type of vehicle to choose next.”

2. Which factors influence fuel costs?

When managing the budget for your business’ fleet, some of the most pressing concerns include:

• Depreciation – how much an asset decreases in value
• Fuel consumption – how much fuel is required to operate the vehicle

How much fuel your vehicles use is a major expense, and can vary greatly depending on the type of vehicles used, types of journeys taken, and how much fuel actually costs.

However, from 2018, your fuel costs on paper are likely to rise significantly as well – that is, if you budget for them using officially published figures.

This is because the system the government uses to create miles per gallon (mpg) data – its estimates for fuel consumption per car – has changed. See the section below for more information.

On top of that, your employees might pay more company car tax, while you, as a business owner, may pay more National Insurance and road tax over time.

Despite this, however, the real-world cost of paying for fuel will not change; although the cars will be less efficient in theory, they won’t be any different in practice.

3. How are vehicles tested?

To help give customers a more accurate indication of how cars will perform on the road, a change has been implemented in the official testing procedure.

Prior to 2017, each vehicle was given a New European Driving Cycle (NEDC) official measure of how well a car would perform. This was produced in laboratory conditions, with the intention of providing a benchmark estimate (as opposed to a real-world figure).

From 1 September 2017, the NEDC could no longer be used to generate fuel consumption and CO2 figures for new cars.

Instead, the Worldwide Harmonised Light Vehicle Test Procedure (WLTP) will take its place, with the aim of better recreating how a car would perform in the real world.

Although the tests are still conducted in a laboratory, they now include acceleration, and higher speeds which are more representative of real-world driving.

4. What are the effects of these changes to testing?

Industry experts have suggested that the WLTP test will see official CO2 figures increase and mpg figures decrease on a car-by-car basis, although due to the scale of the programme, not every car will be tested until April 2020.

Yet on a daily basis, there’s unlikely to be a difference between actual fuel consumption and what your drivers achieve.

However, you should see a closer correlation between the figures you keep in your books and what’s achieved on the road, meaning you should be able to plan your fuel costs more accurately.

5. The impact on tax

Until April 2020, Vehicle Excise Duty (VED) and Company Car Tax (CCT) – and in turn the National Insurance Contributions made by employers – will continue to be based on computer-generated NEDC fuel economy and CO2 figures.

Whilst a new test procedure (WLTP) was introduced in 2017, it won’t become the legal standard until 2020, allowing car manufacturers adequate time to implement the new system.

The problem is that with more strict WLTP testing in place going forwards, and NEDC figures worked out from them, it’s likely official CO2 emissions for new cars will rise. This is relevant for both petrol and diesel vehicles.

Added to that, from April 2018, the company car tax diesel supplement increased from 3% to 4% for cars that are fuelled only by diesel and don’t meet the Real Driving Emissions 2 (RDE2) standard.

6. Diesel vs petrol: Pros and cons

At this stage, you’ve learned more about how diesel is different from other fuel types, as well as which factors influence fuel costs and how vehicles are tested. In this section, we outline the pros and cons of petrol and diesel.

Petrol

Diesel

So how do the fuel types compare? Take a look at the table below which examines the key factors side-by-side to help you answer the question: ‘petrol or diesel’?

Summary

• When creating your fuel budget, base your calculations on the new figures from the WLTP test, as these are more realistic
• Company car tax, VED and National Insurance are all likely to experience a slight rise due to the changes
• Generally, the less CO2 a car or van produces, the less tax you’re likely to pay
• Many diesel cars still measure around 100g/km level (for CO2 emissions), and so can be some of the most efficient
• To reduce your vehicle expenses, look at this measure (g/km). To calculate how much tax you’ll need to pay, use the NEDC figures
• Diesel vehicles tend to be cheaper over time for fleets that drive long distances and have high mileages
• Petrol vehicles can be more cost-effective for shorter trips

What are the next steps?

From reading this article, you’ve learned more about how diesel vehicles are different from petrol and other types of powered vehicles, plus some information about the recent changes in testing and costs. We’ve also provided more details on the impact on tax, as well as an overview of the pros and cons of diesel and petrol vehicles.

Next, you can read our article on fuel card costs for an in-depth look at how fuel cards are priced.