Corporation tax treatment at end of PCP

Director has a 3 year PCP. Wishes to hand the car back rather than make balloon payment

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A director of a small company bought an EV on a 3 year PCP. 

The car is due to be handed back in a couple of month's time. The owner will simply hand the car back and walk away due to siginificant deficit in the current market value of the car and the outstanding amount due (which is the same as the Guaranteed Future Value) 

100% first year allowance was applied as the agreement is a qualifying HP agreement.

When the car is handed back, will this give rise to a corporation tax liabilty or can the asset just be written off?

 

 

 

 

 

Replies (15)

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By Wanderer
12th Feb 2024 14:05

EHDNG3 wrote:

A director of a small company bought an EV on a 3 year PCP. 

The car is due to be handed back in a couple of month's time. The owner will simply hand the car back and walk away due to siginificant deficit in the current market value of the car and the outstanding amount due (which is the same as the Guaranteed Future Value) 

100% first year allowance was applied as the agreement is a qualifying HP agreement.

When the car is handed back, will this give rise to a corporation tax liabilty or can the asset just be written off?


How did you claim allowances at all in the company when this was a PCP?
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Replying to Wanderer:
VAT
By Jason Croke
12th Feb 2024 14:08

+1

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Replying to Wanderer:
By Ruddles
12th Feb 2024 14:12

+1

"A director ... bought an EV"

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By David Ex
12th Feb 2024 14:11

I think the director needs to speak to an accountant as a matter of urgency!

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By ireallyshouldknowthisbut
12th Feb 2024 14:20

Oops

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By EHDNG3
12th Feb 2024 14:21

Sorry should have made clear that the car was bought by the company in the company name

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Replying to EHDNG3:
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By Wanderer
12th Feb 2024 14:32

How's that then, when it was a PERSONAL Contract Purchase?

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By EHDNG3
12th Feb 2024 14:38

It is referred to as a Business PCP by the manufacturer’s finance provider. It is in the company name.

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DougScott
By Dougscott
12th Feb 2024 14:44

The fact is, whether rightly or wrongly, the company claimed 100% capital allowance on "purchase", so there will be a balancing charge on disposal. I think the value to take into account would be the actual market value at the point the car is handed back - if the PCP company won't give a market value then find the value from Parkers or some other reputable listing, or actual car sale adverts of the same model/mileage.

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Replying to Dougscott:
By Ruddles
12th Feb 2024 15:26

I agree that there is likely to be a balancing charge, but disagree that it would be based on MV. Typically, when an asset is returned with outstanding finance, it is the amount of that finance that is foregone that is treated as consideration.

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Replying to Ruddles:
DougScott
By Dougscott
12th Feb 2024 16:19

OK, I didn't know that! Seems a bit unfair though as presumably that will effectively be the balloon payment or whatever they call it?

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Replying to Dougscott:
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By DKB-Sheffield
12th Feb 2024 16:32

Doug

Have a quick look at my calcs below. I think that broadly explains the 'why', and the fairness. Hope that helps?

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Replying to Dougscott:
By Ruddles
12th Feb 2024 16:40

I would say unfortunate rather than unfair. Look at it this way - he agreed to pay £x for the car, but has only paid £y. He is therefore still due to pay £z, being £(x-y). But instead of having to pay £z he is allowed to hand over an asset worth less than £z, say £a. Put it another way, if he had been able to sell it on the open market for £a, he would still have needed to find the balance (£(z-a)) to pay £z over to the finance company.

Why is the value less than the guaranteed residual value? Perhaps he's just been unlucky with the s/h value of EV's. Perhaps his mileage was higher than agreed. Perhaps the guaranteed residual value was artificially high in order to keep monthly payments down.

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By DKB-Sheffield
12th Feb 2024 14:48

Regardless of the PCP situation,and regardless of the fact you (assuming you are - in fact - 'the director') should be (and should have) consulting with your accountant/ tax adviser on this, and solely based on the assumption you have quoted incorrect terminology in relation to the HP agreement (i.e. not PCP at all), and taking all other tax considerations off the table...

What makes you believe you are 'writing off' the vehicle, and that no CT will be due on the disposal after claiming 100% relief?

FWIW... and you need to check this over with someone who has sight of the paperwork...

- Vehicle cost = £50K (e.g.)
- HP repayments made = £35K (e.g.)
- Loan balance (balloon) = £15K

You suggestion is... car returned for £nil proceeds? But, what about the £15K the HP provider has 'taken off your bill'? Are they not 'proceeds' on the sale of the vehicle?

There will be a lot more to it, and a lot more paperwork, but, this is far from a '£nil proceeds write off' IMO!

You should take advice on this. My response is purely a suggestion. And... if it is PCP...! Do contact your accountant!

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Replying to DKB-Sheffield:
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By FactChecker
12th Feb 2024 19:33

This thread belongs in a special section of examples of why a person shouldn't make relatively expensive decisions based purely on unchecked assumptions (especially those that probably felt 'too good to be true' at the time but 'sounded nice')!

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