Finance

Personal Contract Purchase (PCP)

Personal Contract Purchase can be used by any individual, whether in business or not and essentially works in the following way: first you select the vehicle that's right for you, then decide which agreement term to go for normally any monthly period between 24 and 48 months - whatever suits your budget and your intended change cycle. Next, simply estimate the mileage you expect to cover each year and choose a deposit you are comfortable with, including the anticipated value of any part-exchange. We would recommend that you aim to put down between 10% and 20% of the 'On the Road' RRP.

The manufacturer will forecast the future value of the car you've chosen and this is known as the Guaranteed Future Value or GFV. The GFV is the minimum value you can expect your car to be worth at the end of the PCP agreement, provided it is within the agreed mileage and in good general condition. This GFV is your Optional Final Payment.

With PCP your monthly payments are fixed and will be less than with Hire Purchase Plans taken out over an identical term. This is because the GFV and deposit are deducted from the 'On the Road' RRP and payments are based on the remaining balance plus interest.

At the end of the agreement you can drive away in another brand new vehicle and this is the route chosen by many of our customers. Should you wish, you also have the option of paying the GFV (optional final payment) and keeping the vehicle or you may return it to the manufacturer with nothing further to pay.

Key Benefits

1. Low initial deposits 
2. Ideal for opting out from the company car (no company car tax) 
3. Low monthly payments 
4. Option to purchase or return at the end of the agreement 
5. Ability to change to a brand new vehicle on a regular basis

Hire Purchase is a simple and effective way for private individuals and businesses to spread the cost of a new or used vehicle.

Pay a small deposit (normally 10-20% to suit the available capital), and then make monthly repayments over an agreed period of time (any monthly period between 12 and 60 months). Once all the payments have been made along with the option to purchase fee (£10) then the customer acquires title to the vehicle.

If you are a business user, all of the interest on your payments is allowable against tax, additionally a proportion of the vehicle value can be written down against your profits.

Key Benefits

1. Eventual ownership – control of usage and disposal 
2. Eases cash flow, budgeting and planning – known outlay that will not change 
3. Leaves other credit lines undisturbed 
4. Interest charges allowable against taxable profits for business users 
5. Tax relief (capital allowances) – reduces tax bill for business users 
6. Capital released – leaves money available to develop other parts of the business

1. A Hiring Agreement where the vehicle remains the property of the Finance Company 
2. The vehicle is disposed of by the Finance Company at the end of the contract 
3. The contract is set for a period usually between 2 & 4 years 
4. The contract is for a set mileage 
5. The customer payes a fixed monthly rental that will always include: 
• Cost of vehicle funding 
• Cost of vehicle depreciation 
• Road Fund License 
6. For a moderate increase in the monthly rental the customer can choose to build in the costs of Servicing Maintenance and Tyres during the period of the agreement.;
• All Maintenance, Service, Repairs, Tyres and Batteries* 
• Relief Vehicle provision 
• Recovery service 
• *Accidental damage, driver abuse and glass breakages are normally excluded

Advantages

1. Fixed cost motoring: The Customer only has to bear the direct costs for fuel and vehicle insurance, plus Excess Mileage charges if the vehicle exceeds the Terminal Mileage figure 
2. Reduced Administration 
3. No responsibility for vehicle disposal 
4. Low initial outlay 
5. Low monthly outlay 
6. Finance charged on VAT exclusive price of new and qualifying cars

Disadvantages

1. No equity on the vehicle at the end of the contract 
2. VAT on rentals, only 50% of which is reclaimable 

If your business is looking for a comprehensive, fixed cost motoring package where full usage of a new vehicle is important but ownership is not, then you should consider contract hire.

This is essentially an operating lease, which enables you to drive a new vehicle of your choice on a “fully inclusive” basis. Maintenance can be included as part of the contract, leaving you with only fuel and insurance to consider as extras. As you are hiring the vehicle as opposed to buying it, at the end of the contract you simply hand the vehicle back, leaving you with no disposal worries (subject to mileage and condition).

Contract hire is classified as an operating lease for current taxation purposes, therefore it is regarded differently to 'purchase' contracts so you may benefit from certain tax advantages. Your financial or tax advisor should be able to advise you if this applies.

Additionally, if your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage, then only 50% of the VAT payable on the finance may be recovered.

Key Benefits

1. A low initial outlay, usually 3 months advanced rentals 
2. Contracts available for periods of 1 to 4 years depending on the vehicle usage 
3. rentals are pre-determined for the entire contract period 
4. Known additional charge if the contract mileage is exceeded 
5. Road Fund Licence is included with the contract 
6. Full maintenance may be included as part of all contract hire agreements 
7. As the vehicle is simply returned at the end of the contract, there are none of the problems or risks associated with disposal 
8. If registered for VAT your business may reclaim all, or some of the VAT payable on the finance element of the rentals 
9. This form of funding is considered to be “off balance sheet” and the vehicle will not be shown as an asset within the company’s balance sheet

For a business requiring the combination of a minimal outlay with maximum tax efficiency, Finance Leasing provides an alternative to contract hire. Although the business will never actually own the vehicle, finance leasing allows many of the benefits associated with ownership available to the business, while at the same time offering significant tax advantages.

If your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage, then only 50% of the VAT payable on the finance may be recovered.

For the duration of the Finance Lease agreement, the vehicle will be shown as a 'leased asset' within your balance sheet. Rentals are treated as a revenue expense and may be offset against your taxable profits. Furthermore, rentals can be tailored to match the cash flow of your business, with a “balloon” rental being used to defer part of the vehicles initial cost.

If your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage, then only 50% of the VAT payable on the finance may be recovered.

If your business is registered for VAT,100% of the VAT on the Finance Lease may be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage then only 50% of the VAT payable on the finance element of the rentals may be recovered. At the end of the agreed lease period, the vehicle is sold and the proceeds are used to clear any “balloon” payment. If the sale proceeds do not cover this amount, then the lessee must make up the shortfall. Should the proceeds exceed the “balloon” then the difference will be refunded as rebate of rentals.

If your business is registered for VAT, 100% of the VAT payable on the finance element of the rentals may be recovered where the vehicle is either a van or a car used solely for business purposes. Where the vehicle is a car used for business and private mileage, then only 50% of the VAT payable on the finance may be recovered.

Key Benefits

1. Low initial outlay, usually 3 months advance rentals 
2. Rental patterns tailored to suit the cash flow needs of the business and a “balloon rental” that will have been agreed between the lessee and lessor 
3. Road tax is included for the first year 
4. Rentals may be offset against taxable profits, improving the cash flow and taxable position of the business 
5. Where sale proceeds of the vehicle exceed the ”balloon rental”, the difference is returned as a rebate of rentals