Client's Limited Company has bought a 100% electric Audi from local Audi/VW dealership; purchased using VW Finance and used for business and private use.
Cost is 40,000 + VAT so 48,000 full retail price. It was invoiced to VW Finance and delivered to my clients company.
Numbers are
10,000 deposit
26,640 (48 monthly repayments of 555)
19,000 (optional final payment in 48 months time)
55,640 (total payments)
The 19,000 looks like a reasonable estimate of the car value in 4 years time (agreement is for 20,000 miles per annum).
Client has been told by dealer it is a PCP agreement but could it be a Hire Purchase Agreement; can't tell for sure from the paperwork.
If its a HP agreement then we can claim a full FYI allowance for the purchase; if its a PCP then I believe it is treated as leased and the tax treatment follows the accounting treatment.
There is no mention ov VAT in the agreement except on the sales invoice where the £8,000 VAT is shown and in the para quoted below. Is it possible there could there be any VAT in the monthly repayments. (the agreement does state "any figure provided within the contract for VAT is provided as guidance only. Notwithstanding also the sum for VAT specified in the order, the sum payable by the customer in respect thereof shall be the sum for which the dealer becomes legally liable at the time the taxable supply occurs")
I'm sorry to ask this question but it is a long time since one of my clients bought a car on their company and I am struggling to research an answer.
If it is a PCP then does the client claim full tax relief on the deposit of £10,000 then tax relief on the monthly repayments as a deduction from P/L?
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Replies (7)
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On the one hand what do you think the first P in PCP stands for?
Separately HP agreements don't quote mileages!
Look at the options here:-
https://customer.vwfs.co.uk/car-finance-options.html
Guessing it's their Lease purchase or Finance Lease - balloon option.
Beat me to it ... I was about to ask why OP felt that the opening sentence ("Client's Limited Company has bought a 100% electric Audi") was justified?
There's no reference to which entity is shown on the V5C or indeed the dealer's sales paperwork or ...
TBF you know the answer really, or will know if you read the terms of the agreement.
It used to be simpler though... such agreements used to have simpler names 'HP', 'Finance Lease', 'Operating Lease' but that simplification has disappeared over time (VW list 6, others list 10 or more!).
However, on the VAT issue, I have some minor doubts. For company/ business 'lease purchases' I would usually (not always) expect to see the VAT itemised on the agreement (as well as the 'dealer-to-FinCo' invoice). The deposit usually covers the VAT + extra (which appears to be the case). However, the absence of itemised VAT (by VW Finance, not a small FinCo) would make me double-check the name on the agreement - it may (but may not) be the individual!
The vehicle was "invoiced" to VWFS by the dealer and "delivered" to my client's Limited Company. The V5C has the Limited Company's name on it (but also says "This document is not proof of ownership - it just shows who is responsible for registering and taxing the vehicle"). The invoice from the dealer was for £40,000 + VAT of £8,000
Thanks Wanderer I have looked at the VW link you kindly provided.
I have re-read all the Audi documents and on the payment schedule VWFS refer to "we are delighted you chose our Solutions plan" and the schedule is addressed to the Limited Company. This suggests to me it is set up as a Solutions PCP which is described by VW as deposit > estimated mileage > determine length of agreement > workout monthly payments > 3 options at end of agreement (hand back, trade in, pay the final optional payment). This seems to echo what my client has told me.
I looked at VW Lease Purchase which is described as deposit > estimate mileage > calculate monthly payments > then at the end there is a balloon payment that is NOT optional and you keep the vehicle. I don't think it is that.
Also the Finance Lease Balloon option described as monthly payments based on mileage and period of agreement > balloon payment at end (either by selling the vehicle on behalf of VWFS or settling the balloon payment with VWFS.
Is it reasonable to conclude that it is a PCP on this basis.
If it is a PCP then is the tax position to claim tax relief on the deposit and on the monthly repayments as you go along and then on the final payment option if taken up?
Would there be VAT in the repayments or is VAT likely to have been sorted out at the outset?
My fault for mentioning the red herring - the V5C does indeed merely indicate the 'registered keeper'.
But if the vehicle was "invoiced" to VWFS by the dealer, then presumably VWFS is the owner (until/if payment of the end-of-term option) - and the company has use of a lease car (as does presumably the director as a BiK).
I leave issue of VAT to others (being cowardly and unqualified to hold an opinion).
If it is a PCP then does the client claim full tax relief on the deposit of £10,000 then tax relief on the monthly repayments as a deduction from P/L?
If the arrangement is an operating lease then payments are recognised straight line over the term. So the 10,000 deposit is spread over the 48 months.
Not sure on the HP/PCP answer.
Remember the VAT block on cars which differs depending on the type of arrangement:
-With HM, generally no VAT recoverable on the car; and
-With PCP, generally 50% of the VAT is recoverable per payment.
Unless the car is qualifying and you then will likely be able to claim 100% of the VAT back.
