General Discussion around PCH vs PCP

[NewVolvo]

Originally Posted by Prufrock

The treatment of VAT in the UK is quite straightforward -

1. VAT (that's the VAT on the capital cost) on new cars, if solely for business use all the VAT is reclaimable.
2. Lease costs, where VAT is applied the rental VAT is reclaimable at 50%
3. Fuel. There are different ways of reclaiming VAT on fuel all VAT is reclaimable if used solely for business; if used for business and private then there are 3 ways of handling VAT - this information is widely available.

You can usually reclaim the VAT on all business related running costs. In simple terms these are the methods a business can use to finance a vehicle -

Hire Purchase (HP)
Lease Purchase (LP)
Finance Lease (FL)
Contract Hire (CH) - generic term for Operating Lease.

Only FL & CH attract VAT on the advance and monthly rentals. Tax modelling is a critical factor in the funding of vehicles/equipment, as it is in the treatment of schemes like car ownership and salary sacrifice.

Jon.

That is not the way it used to be.....but perhaps it has changes since I last had a company car in the UK (2008)?!

Either way, seems overly complicated. The fact is, if the company pays your car, that should include fuel, tax, insurance with VAT fully reclaimable by the company. The person who uses the car is also usually the person who pays the tax on the car in order to use the car to/from work and Tesco. Anything else is a joke in my book!

But as we all know, the Government does not want Joe Bloggs to have a car, let alone a company one while they get driven around in nice V8's, but this is hardly news.

Rant over.

[Bill_56]

I've always tried to restrict myself to cars that I could buy outright. Only exception was the one I treated myself to for starting work, a 4 year old Cortina, purchased with help of a bank loan. That attitude meant I was nearly 25 years into my career before getting my first new car, but saved me quite a lot in interest repayments.

But I'd like to understand the criticisms that these schemes 'lock people in'. Surely the idea is, you have no money and no car, so you enter into a PCH/PCP. After some time (three years?) you either buy the car or give it back. You still have no money, so you give back the car and once again you have no money and no car, you are no better or worse off than when you started. What am I miss-understanding ?

[NigelDay]

Originally Posted by Bill_56

I've always tried to restrict myself to cars that I could buy outright. Only exception was the one I treated myself to for starting work, a 4 year old Cortina, purchased with help of a bank loan. That attitude meant I was nearly 25 years into my career before getting my first new car, but saved me quite a lot in interest repayments.

But I'd like to understand the criticisms that these schemes 'lock people in'. Surely the idea is, you have no money and no car, so you enter into a PCH/PCP. After some time (three years?) you either buy the car or give it back. You still have no money, so you give back the car and once again you have no money and no car, you are no better or worse off than when you started. What am I miss-understanding ?

The point I was making about the lock-in was probably a little exaggerated. My son seems to get such good offers from VW over the years that it becomes very difficult to look elsewhere, even to Skida sold by the same dealer on the same site.

[Prufrock]

Originally Posted by NigelDay

The point I was making about the lock-in was probably a little exaggerated.

It is exaggerated. Any finance contract is of a fixed term nature, and the concept of the PCP when they were first introduced (in the 1980s) was to encourage the kind of consumer who didn't want ownership to change their car on a regular basis - hopefully with the same brand and/or dealership.

Of late I think the PCP has become something rather different.

Jon.

[Prufrock]

Originally Posted by NewVolvo

That is not the way it used to be.....but perhaps it has changes since I last had a company car in the UK (2008)?!

Either way, seems overly complicated. The fact is, if the company pays your car, that should include fuel, tax, insurance with VAT fully reclaimable by the company. The person who uses the car is also usually the person who pays the tax on the car in order to use the car to/from work and Tesco. Anything else is a joke in my book!

But as we all know, the Government does not want Joe Bloggs to have a car, let alone a company one while they get driven around in nice V8's, but this is hardly news.

Rant over.

What is written here is not correct, nor does it actually make sense - unless it is simply considered an uniformed rant (sic).

A company vehicle in the U.K is treated as a taxable benefit which is why the user/employee is levied tax on the value of that benefit.

Jon.