More companies are turning to green company cars as a solution to rising motoring costs with research suggesting that more environmentally friendly company cars could save UK firms a collective £3bn a year.

So what makes green company cars so attractive and should you consider them for your business? This guide will show you some of the options on the market and explain how you can make the savings work for you.

Quick links:

• What are green company cars?
• How can green company cars save your business money?
• How green company cars save money on tax?
• How green company cars save money on fuel?
• Which are the best green company cars?

What are green company cars?

Green company cars are vehicles used by businesses that have low emissions and are generally more fuel efficient than conventional alternatives. This could mean that they are hybrid or electric cars, alternative fuel vehicles or even just petrol or diesel cars with low emission levels.

There are numerous reasons for companies to consider going green – including the benefits for the environment and significant financial incentives.

How can green company cars save your business money?

According to research by the Energy Saving Trust, UK businesses could collectively save as much as £3bn a year if they make the most of a new tax break that was introduced in April, 2008.

The report, entitled Behind the Wheel II, states that UK firms could save as much as £250m a year through reduced National Insurance contributions and £780m a year through lower fuel bills by moving their company car fleets to greener vehicles that emit less than 120g/km of carbon dioxide (CO2).

As a further incentive, UK employers could benefit from £645m in savings through benefit-in-kind income tax contributions and could save a further £1.2bn a year on the fuel bill of driving their cars privately.

Even before the new tax boundaries were introduced in Alistair Darling’s first Budget in April 2008, the savings that could be enjoyed with green company cars were significant. Research by accountants Grant Thornton assessed the cost of procuring and running a fleet of 50 company cars comparing the 10 most popular vehicles with the 10 greenest vehicles on the market. While the green fleet would actually cost more upfront, the study found that over a four-year period it would cost around £60,000 less due to the reduced fuel and tax costs.

How green company cars save money on tax

Company car tax was reformed in the 2008 Budget with a new 10 per cent tax band introduced for company cars with CO2 emissions of 120g/km or less. This became immediately applicable.

Taxable percentages increase based on the level of emissions a car produces – 15 per cent for cars that emit 135g/km or less; 16 per cent for 140g/km or less; and so on. To read the taxable percentages in full, check out this guide.

If a car is made available to employees for private use, employers must pay tax on the benefit of this – similarly they have to pay tax if free or subsidised fuel is provided for private use in car. In 2008/09 the rules governing the calculation of appropriate percentage changed in three ways:

1. The lower threshold was reduced for CO2 emissions from 140g/km to 135g/km.
2. A new 10 per cent band was introduced for cars with CO2 emissions of 120g/km or lower, as outlined above.
3. A new two per cent reduction was introduced for vehicles manufactured to be able to run on E85 fuel – that is a mixture of 85 per cent ethanol and 15 per cent unleaded petrol.

To summarise, as with private vehicles, the greener the car the less tax you pay. For more information on tax advice for employers visit the HM Revenue & Customs website.

How green company cars save money on fuel

Running vehicles costs a lot of money with fuel prices in 2008 peaking at around £1.30 a litre for diesel and £1.20 a litre for petrol. Clearly, the more fuel you can save the better.

This is where green company cars come into their own – they are significantly more fuel efficient with vehicles such as the Peugeot 308 HDi 110 able to achieve a remarkable 90.75mpg and the Ford Fiesta ECOnetic achieving 76.7mpg. By driving more fuel efficient vehicles it is estimated that UK firms could collectively save £1.2bn a year on fuel costs alone – while simultaneously reducing carbon emissions by around 4.9m tonnes a year and so offering huge benefits to the environment.

There are additional incentives too, to turn your fleet green. For example, if your company is based in the London area, a fleet of green company cars may be exempt from the London Congestion Charge and may also qualify for reduced or free parking in some zones.

Which are the best green company cars?

If you want to convert your fleet to green company cars, you may have to pay a little more upfront – but chances are you will save significantly in the long run. To maximise savings, you’ll need vehicles that produce 120g/km or less of CO2. Here is a guide to some of the leading models you may wish to consider for your company:

• Citroen C1 – The 1.0i produces 108g/km of CO2 and has fuel costs of £942 over 12,000 miles. Alternatively the C1 1.4HDi has CO2 emissions of 109g/km but fuel costs of just £895 over 12,000 miles.
• Daihatsu Charade – The L251 1.0l produces CO2 emissions of 114g/km and has fuel costs of £982 over 12,000 miles.
• FIAT 500 – The 1.3 16v Multijet has emissions of 112g/km with fuel costs over 12,000 miles of £916.
• Honda Civic Hybrid – The 1.4 IMA ES produces 109g/km of CO2 and has fuel costs of £942 over 12,000 miles.
• MINI Cooper – The MINI Cooper D Hatchback with particle filter has emissions of 104g/km with fuel costs of £851 over 12,000 miles. The MINI Clubman R55 has emissions of 109g/km with fuel costs over the same distance at £895.
• Peugeot 107 – The 1.0 produces 109g/km of CO2 and has fuel costs of £942 over 12,000 miles.
• SEAT Ibiza – The 1.4TDI 80PS Ecomotion produces just 99g/km of CO2 and has fuel costs of just £830 over 12,000 miles.
• Skoda Fabia – Both the Skoda Fabia and Fabia Estate produce 109g/km of CO2 for fuel costs of £895 over 12,000 miles.
• Smart fortwo cabrio – The 61bhp version produces 113g/km of CO2 with fuel costs of £962 over 12,000 miles. Other models produce 116g/km and 118g/km of CO2 for fuel costs of £983 or £1,004 over the same distance. With 225 rear tyres the 61bhp has emissions at 120g/km and fuel costs of £1,023.
• Smart fortwo coupe – The 45kW and 52kW versions produce 112g/km of CO2 and have fuel costs of £962. The 50bhp and 61bhp versions have the same fuel costs but produce 113g/km of CO2. Other variations can produce CO2 emissions of 116g/km and 118g/km with fuel costs of £983 or £1,004 over the same distance. With 225 rear tyres the 61bhp has emissions at 120g/km and fuel costs of £1,023.
• Toyota Aygo – The 1.0 VVT-I produces 109g/km of CO2 and has fuel costs of £942 over 12,000 miles.
• Toyota Prius – The 1.5VVT-I Hybrid produces 104g/km of CO2 and has fuel costs of £880 over 12,000 miles.
• Volkswagen Polo – The 1.4 TDI BLUEMOTION has CO2 emissions at 99g/km and fuel costs of £830 over 12,000 miles.

There are many other vehicles that fit below the 120g/km threshold. For more information visit the VCA Carfueldata.org website.