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If you drive a company car, it’s more likely than not that it will have a diesel engine. Many organisations’ fleet policies dictate that company vehicles should run only on diesel, or perhaps with a hybrid option.

This is because in many cases, particularly with high mileage fleets, diesel offers a lower operating cost than petrol.

There is also a greater incentive for both drivers and fleet operators to consider diesel over petrol because of the lower CO2 emissions relative to petrol.

Company car tax, vehicle excise duty and employers’ Class 1A National Insurance contributions (payable when a car is provided for an employee’s private use) are all linked to CO2 emissions.

But diesel cars carry a penalty when it comes to taxing them on CO2 emissions. A 3% penalty is added to their BIK tax band before liability is calculated.

This is a legacy of penalising the higher NOx and particulate emissions produced by diesel engines which can contribute to poor air quality, relative to petrol when the tax system was developed before its introduction in 2002.

Diesel cars also tend to carry a higher list price than their petrol equivalents, which can also have an impact on the taxable value of the car.

In the overwhelming majority of instances a diesel company car will cost the driver and company less than a similar petrol car.

But in some cases a petrol car will actually cost less than a diesel for BIK tax and employers’ National Insurance contributions.

If it is particularly frugal, it might also offset the fuel consumption advantage of the equivalent diesel version.

In Example 1, the petrol version of the Volkswagen Golf, despite having a lower P11D value, would be costlier for both the driver and the employer.

However, in Example 2, there is little to choose between petrol and diesel versions of the BMW 3 Series.

Example 1


Volkswagen Golf 1.4 TSI Match 5dr

Volkswagen Golf 1.6 TDI Match 5dr

P11D value






BIK tax band



Annual tax (20%)



Class 1A NIC



Annual VED


£0 then £30


Example 2


BMW 320i M Sport

BMW 320d M Sport

P11D value






BIK tax band



Annual tax (20%)



Class 1 NIC



Annual VED


£0 then £95

Data for 201/12 tax year and correct as of July 1, 2011


Therefore, if you are able to choose the type of fuel a car runs on as well as the car, it would pay to research options using a good company car tax calculator.

Back to the Company Car section


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Borrowing £7,500 over 4 years with a representative APR of 25.4%, an annual interest rate of 25.4% (Fixed) and a deposit of £0.00, the amount payable would be £239.77 per month, with a total cost of credit of £4,008.96 and a total amount payable of £11,508.96.

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