PCP vs Lease

[greybox]

Hi,
Since some of the users on this forum also purchased their Taycan's for the tax benefits, I was hoping to get some advice and wondered whether it would be more tax efficient to purchase it under a PCP plan or on contract hire? The intention would be to give the car back at the end of the 36 months or 48 months period. With the contract hire (lease) I would be able to claim back 50% of the VAT however for some reason and I thought it would have been the same with the PCP plan too however I have been told that there would be no VAT on the PCP so I would not be able to reclaim any VAT on my monthly payments.

So, if the price for PCP was £1000 per month (with no VAT on the invoice) and the price for contract hire/lease was £1000 incl VAT, both with a £3000 deposit, which would be the more tax efficient option? I have been told various things such as how we would be able to claim a lot of things under the PCP which we would not be able to claim on a normal contract hire/lease so even though we can claim back 50% of the VAT on the contract hire, a PCP should work out more cheaper and tax efficient in the long run.

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[Gogs]

You can only claim 50% vat if that car is only used for business. You cannot drive this car home. Engage with your accountant and get his/her take on what’s best for your circumstances

 

[Persuader]

You can only claim 50% vat if that car is only used for business. You cannot drive this car home. Engage with your accountant and get his/her take on what’s best for your circumstances

That's not correct.
https://chw-accounting.co.uk/news-a...e VAT charged on lease,private use of the car.

 

[Persuader]

Hi,
Since some of the users on this forum also purchased their Taycan's for the tax benefits, I was hoping to get some advice and wondered whether it would be more tax efficient to purchase it under a PCP plan or on contract hire? The intention would be to give the car back at the end of the 36 months or 48 months period. With the contract hire (lease) I would be able to claim back 50% of the VAT however for some reason and I thought it would have been the same with the PCP plan too however I have been told that there would be no VAT on the PCP so I would not be able to reclaim any VAT on my monthly payments.

So, if the price for PCP was £1000 per month (with no VAT on the invoice) and the price for contract hire/lease was £1000 incl VAT, both with a £3000 deposit, which would be the more tax efficient option? I have been told various things such as how we would be able to claim a lot of things under the PCP which we would not be able to claim on a normal contract hire/lease so even though we can claim back 50% of the VAT on the contract hire, a PCP should work out more cheaper and tax efficient in the long run.

Totally depends on your personal / business tax circumstances & personable preferences regarding on balance sheet vs off balance sheet. Speak to an accountant about your individual tax/business situation.

 

[greybox]

Thank you for sending that link, I had read the same about how we could claim 50% of the VAT too so I was confused when I saw the first answer. That's fine, I will speak to my accountant about it.

 

[bootsie]

If you intend to hand the car back and walk away at the end of the term then leasing (Business Contract Hire) is almost certainly cheaper.
I'm pretty sure you'll still pay VAT on a PCP though - VAT is applied on all new car sales, right?
(and PCP is PERSONAL contract purchase - did you mean Business Contract Purchase?)

 

[greybox]

Hi Bootsie

Sorry yes I meant to say BCP instead of PCP. However, in terms of VAT, that is the confusing thing. Porsche Financial Services said that the monthly payments will have VAT and my accountant said that the PCP/BCP should have VAT on the monthly payments too however my local Porsche dealership are saying that there would not be any VAT on the monthly payments for the BCP.

 

[Persuader]

Hi Bootsie

Sorry yes I meant to say BCP instead of PCP. However, in terms of VAT, that is the confusing thing. Porsche Financial Services said that the monthly payments will have VAT and my accountant said that the PCP/BCP should have VAT on the monthly payments too however my local Porsche dealership are saying that there would not be any VAT on the monthly payments for the BCP.



Regards
Mohammed

The payments on BCP and PCP include the vat element but is not listed separately as vat cannot be reclaimed as it is a purchase agreement unlike PCH and BCH which are rental agreements.

 

[bootsie]

Hi Bootsie

Sorry yes I meant to say BCP instead of PCP. However, in terms of VAT, that is the confusing thing. Porsche Financial Services said that the monthly payments will have VAT and my accountant said that the PCP/BCP should have VAT on the monthly payments too however my local Porsche dealership are saying that there would not be any VAT on the monthly payments for the BCP.

Regards
Mohammed

Hmm, well these also say no VAT:
https://www.firstvehiclefinance.co.uk/business-contract-purchase
https://www.yorkshirefleet.co.uk/fleet-management/taxation-rules/

but also this, which confuses me even more:

Business Contract Purchase payments for depreciation and interest are not subject to VAT, therefore Contract Purchase is appropriate for fleet users who are exempt or partially exempt for VAT purposes as the VAT on the rentals would not be fully recoverable. If your company is registered for VAT, Business Contract Hire may be a more suitable funding option.

I'm not sure how to read any of that - but if you trust your accountant I'd go with whatever they said!

EDIT: explained by @Persuader above while I was typing this out

 

[Sonic]

And just to complicate things further - look at finance lease

You can reclaim the VAT element regardless of personal usage as per a lease agreement, but retain elements of control in a purchase agreement.

In my experience though, despite being able to reclaim 50% of the VAT, it still worked out cheaper to go HP for purchase with 0% VAT reclaim.

 

[Gogs]

Well. My accountant is top tier, I believe what they say. They told me any personal use, no vat reclaim. If the car was left at the office, as a pool car then 50%. Vans full 100%

 

[Persuader]

Well. My accountant is top tier, I believe what they say. They told me any personal use, no vat reclaim. If the car was left at the office, as a pool car then 50%. Vans full 100%

He's wrong. You can claim 100% of the vat if it's a pool car and 50% if mixed business/private use.

 

[Gogs]

Mmm, 50% if it’s leased. A pcp or cash purchase would not qualify.

 

[Sonic]

Well. My accountant is top tier, I believe what they say. They told me any personal use, no vat reclaim. If the car was left at the office, as a pool car then 50%. Vans full 100%

He's correct for purchase but not lease.

Purchase - 50% VAT reclaim without personal use, 0% with personal use.
Lease - 100% VAT reclaim without personal use, 50% with personal use.

HMRC say the emphasis is on you to demonstrate it's not used for personal usage... so leaving parked on the driveway is a bit of a giveway.

I know folk that have risked the reclaim on a purchase, but not one i'd do personally given the value and potential hassle later down the line!

Also in terms of purchase there's more complication when it comes to selling it with regards to VAT, Corporation Tax and Profit... ergo potential Dividend

 

[Squarecircle]

Ignoring residuals, lease is always going to be cheaper due to the vat reclaim. Factoring in residuals, who knows as it's a gamble on the final price and future tax rates.

I would not let tax lead the decision in terms of lease v buy as there is no a right answer. Just go with what suits you from the mechanics of each option, cashflow and finance rates available.

Now if your accounts are IFRS, that adds another complication but I doubt they will be and I shall save that for another day.

Just to add, in my professional view, PCP is just a lease in disguise. The Vat is reclaimable at 50% assuming you can get monthly VAT invoices from VWFS. I am three months in and they still seem unable to send me one!

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