13 March 2010

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Green company cars

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 back in 2008, UK businesses could collectively save as much as £3bn a year if they make the most of tax incentives for lower-emitting cars. With the tax thresholds based on CO2 emissions being constantly tightened, the argument to ‘go green’ gets ever more convincing.

The report from 2008, 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 new tax boundaries are introduced in April 2010, the savings that can be enjoyed with green company cars are significant. Research by accountants Grant Thornton in 2008 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 is reformed in 2010 with the tax bands tightened, and a further 5g CO2 tightening set for 2011 too. See our company car tax guide for more information.

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. For Business mielage rates, read our guide here and for company car BiK tax, click here.

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 back on the rise in 2010. 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 62.7 mpg combined and the Ford Fiesta ECOnetic achieving 76.3 mpg on a combined cycle. 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 alternative fuelled 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. We have gone slightly better and produced a guide of some cars which produce under 110g/km CO2. Here is a short list of some leading green models you may wish to consider for your company:

Top 5 petrol vehicles with 110g/km CO2 or less

Toyota Prius with emissions from 89g/km and fuel consumption up to 72.4mpg; fuel costs £663 driving 12,000 miles.
Toyota iQ with emissions from just 99g/km and fuel consumption up to 65.7mpg; fuel costs £731 driving 12,000 miles.
Honda Insight with emissions from just 101g/km and fuel consumption up to 64.2mpg; fuel costs £748 over 12,000 miles.
Nissan Pixo with emissions from just 103g/km and fuel consumption up to 64.3mpg; fuel costs £747 over 12,000 miles.
Smart fortwo coupe with emissions from 103g/km and fuel consumption up to 65.7mpg; fuel costs £731 over 12,000 miles.

Top 5 diesel vehicles with 110g/km CO2 or less

Smart fortwo coupe with emissions from 88g/km and fuel consumption up tp 85.6mpg; fuel costs £637 over 12,000 miles.
Ford Fiesta with emissions from 98g/km and fuel consumption up to 76.3mpg; fuel costs £715 over 12,000 miles.
SEAT Ibiza with emissions from 98g/km and fuel consumption up to 76.3mpg; fuel costs £715 over 12,000 miles.
Peugeot 207 with emissions from 99g/km and fuel consumption up to 74.3mpg; fuel costs £734 over 12,000 miles.
Volkswagen Golf with emissions from 99g/km and fuel consumption up to 74.3mpg; fuel costs £734 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.

Page updated: Jan 2010

Author: Lee Sibbald, August 11, 2008

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