Client is a black cab driver who has 'purchased' an electric cab on a five year PCP agreement.
Now I know that the treatment of these agreements (i.e. quasi-HP vs. lease) hinges on the expected value at the end - in this case the final payment is a shade under £20k, so if we expect the vehicle will be worth less than that then we assume the 'lease' treatment.
As these vehicle types are so new there isn't much of asecondhand market - and presumably none with five-year old examples floating around to give us an idea of market depreciation rates.
Any thoughts?
Thanks in advance.
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It does have a GMV of £10 less than the final payment - which smells like the option to purchase fee.
PS nice use of what looks like a Triumph Stag alloy as your profile pic. GKN made some nice wheels back in the day.
That was my immediate thought! It's amazing how these are so easily identifiable, just like the four spoke alloy Ford used on cars like the Capri 2.0 S (as seen in the professionals). Although, to be fair I used to have one of those. Wish I still did.
Spot on! The standard pressed steel ones are so ... British Leyland. Mine came with the alloys fortunately (though I have added locking wheel nuts since!)
The amount of the final payment isn't the determining factor but I'd say that you've got it the wrong way round. If the vehicle is worth less than the final payment I'd say that it is more likely than not that the total payments will represent a transfer of the economic benefits ...
... especially if ownership actually transfers to your client - you mention that the agreement is PCP. Presumably the second 'P' is 'Purchase' in which case the clue is usually in the name.
The final payment is optional though - one of the other options being to return the vehicle. My thinking is that if the value is expected to be significantly below the final payment then we'd assume he'd walk away or buy a new vehicle.
That being said, the 'return' option includes the right of the finance company to charge him for the reduction in value resulting from it not being in 'good condition' (hmmm) which further implies an effective transfer of economic ownership which points to your view (and would suit the client of course).
The treatment should depend on the facts, not what you think the client may or may not do at the end of the term.
