BusinessCorporate FinanceFleet special: petrol vs diesel

Fleet special: petrol vs diesel

Petrol versus diesel: the relative running costs

Companies blindly following the diesel route while ignoring petrol, thinking
they are saving money, could be costing themselves and their employers thousands
of pounds a year.

Many fleets are running diesel cars oblivious to the fact that it is causing
higher fuel bills and more tax for drivers.

According to Vauxhall, companies must look at the mileages their cars are
doing and work out which fuel option will serve them best based on the results,
and not their assumptions.

In many cases, for cars that are going to do less than 10,000 miles a year,
petrol is the cheapest choice. Part of the reason is the widening differential
between the price of diesel and unleaded fuel at the pumps.

The AA’s tracking of fuel prices shows that the average price of diesel in
the UK in May was 88.3p per litre (£4.01 per gallon) while that of unleaded
petrol was 84.3p per litre (£3.83), a differential of 4.5%.

As a result, when the front-end premium price of a diesel – often as much as
£1,000 – is included alongside the extra cost of the fuel, many drivers are just
not doing enough miles to claw back the extra costs through the lower fuel
consumption of diesel cars.

A basic whole life cost calculation shows that drivers may be taxed more and
cars may cost more, if they don’t cover the right mileage.

Paul Adler, Vauxhall’s fleet brand manager, says: ‘While it is true that
running a diesel car for 60,000 or 90,000 miles over three years remains the
more cost-effective option, for mileages of less than that the picture is far
less clear cut.’

Drivers will also have to be very careful around personal taxation when
choosing cars as a key change will take place at the end of this year. From
January 2006, the cleanest Euro IV cars, which until now had been exempt from a
3% diesel penalty, will no longer escape the charge, which will push up tax
costs for drivers and could make diesel less attractive than petrol.

Free fuel?

If ever there was an example of an inaccurate description for a product, then
free fuel would be the outright winner.

Never has a phrase been more misleading or so spectacularly inaccurate than
in describing as ‘free’ something that often costs drivers more than the benefit
of the fuel they are receiving.

If a company car driver has all his or her private fuel paid for by the
company, then it incurs tax on a standard benefit, currently £14,400 a year.
Drivers pay BIK tax on a percentage of the £14,400 bill according to the
emissions of their company car, mirroring the company car tax system.

Effectively, the charge is the same as receiving a second company car worth
£14,400.If a driver was using a Vauxhall Vectra 1.9CDTi, which emits 159g/km of
CO2 and is taxed at 18%, he or she would pay tax on 18% of £14,400, or £2,592. A
22% taxpayer would therefore pay £570 per year.

At current fuel prices, the driver would have to cover 6,751 private miles
just to break even. Average private mileage is 6,000 miles. In addition, the
company would also pay tax on the benefit.

The tax is intended to drive motorists out of the free fuel regime by taxing
them more than the fuel they receive is worth. However, for many, it also
encourages them to cover excessively high mileages to ensure they use enough
fuel to cover their tax bill.

Overall, experts say it is better for companies to find other ways to pay
staff and scrap free fuel altogether.

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