Company car: petrol, diesel, hybrid or electric car?

Deciding what would power your next company car used to be so easy. The choices were either petrol or diesel, and the CO2-based taxation system meant that for most people a diesel cost less in company car tax.

Then along came hybrid cars – which still use fossil fuels, but less of them – and plug-in hybrids (PHEVs). PHEVs and certain other hybrid models allow you to do some of your driving on electricity alone, reducing you fuel and tax bills.

Now there's also a wide range of electric cars (and electric vans) to choose from. They are by far the cheapest option for company car tax but demand certain compromises in terms of range and recharging times.

So which is best for you? Here we list the pros and cons of each type of vehicle to help you narrow down your search for your next model.

Is petrol, diesel, hybrid or electric power best for company car drivers?

Electric cars

An electric car isn’t for everyone, but it would be unwise to dismiss running one for business purposes out of hand, because they are by far the most tax-efficient company car option.

Zero-emission vehicles are taxed at 2% in the 2022/23 tax year, and this rate will remain frozen until the end of the 2024/25 tax year. It means that for the next couple of years, a super-fast electric car costs vastly less in benefit-in-kind (BIK) tax than a small hatchback with an engine.

Act sooner rather than later though, because the tax rates will eventually change. HMRC will want to make sure it doesn't lose out on tax revenue as more and more people make the switch to electric cars.

Pros
·   Exceptionally low tax rates until April 2025 at least
·   Many electric cars can now do more than 200 miles on a charge in real-world conditions
·   If you can charge at home or at work, private miles are cheap

Cons
·   Waiting lists for some models are long
·   The electric car you want might bust your leasing budget
·   Long journeys will need lengthy charging stops

Hybrid and plug-in hybrid cars

Almost every car maker offers a hybrid or plug-in hybrid (PHEV) these days. The main difference between them being that with PHEVs, you'll need to connect them to a charger to replenish their batteries most efficiently.

Some non-plug-in hybrids are described by the manufacturer as 'self-charging'. That's a bit of a misnomer – they simply recapture energy that would otherwise be wasted, rather than generating electricity from thin air.

PHEVs are much more enticing for company car drivers than non-plug-in hybrids because they generally emit much less CO2 and so sit in a lower company car tax band.

Pros
·   PHEVs offer very low tax bills
·   None of the range anxiety an electric car can bring
·   A happy halfway house between fossil-fuelled cars and full-on electric cars

Cons
·   You’ll need to keep the battery topped up if you're to make the most of its electric range
·   You’ll pay more in tax than you would for a fully electric car
·   Hybrid batteries often sit below the car’s boot, reducing load space

Diesels

Diesel may have been demonised over the past few years, but they still have something to offer company car drivers. Modern diesels must meet the tough RDE2 emissions standard, which is intended to guard against cheating by manufacturers. That means modern diesels are exceptionally clean, and they remain the go-to choice for high-mileage drivers.

Pros
·   An RDE2-compliant diesel skips the 4% tax surcharge that less efficient diesels face
·   Diesels use less fuel than hybrids on longer journeys
·   A petrol car emits more CO2

Cons
·   Bigger tax bills than an electric car or plug-in hybrid attracts
·   Cleanest diesels still harm air quality more than an electric car
·   If car is used for only short trips, the diesel particulate filters can become clogged

Petrol

As sales of new diesel cars has declined, those of petrol-powered models have risen. However, petrol-powered cars still don’t make sense for most company car drivers because of the high tax bills and fuel costs. In most cases, an electric car or plug-in hybrid makes much more sense.

Pros
·   Turbocharged small petrol engines offer reasonable fuel economy
·   Quick to top up the tank, and range anxiety is of no concern
·   Petrols make more sense than diesels in an urban environment

Cons
·   Petrols emit more CO2 than any alternative power source
·   Diesels use much less fuel on a long journey
·   You’ll pay much more in BIK tax bills

Conclusion

The world of company cars is evolving more rapidly than at any previous point in its history, but one thing is clear – electrification will vastly lower your monthly tax bills. For most company car drivers, an electric car or a plug-in hybrid is the wise choice, but if you do a huge number of miles each year, a diesel-powered car will still be an attractive option.

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