Once you have decided on the type of vehicle you want, the next decision is how best to fund it. The various different finance packages can seem confusing and even when you have chosen the package that best suits your needs finding the best deal can be time consuming.
At AMARI™ Super Cars GB we are committed to helping you do both. Whether you are a private individual, sole trader or fleet operator, our team can offer you advice on the most tax efficient ways to finance your vehicle. We will provide you with the correct information so that you can make an informed decision. We always recommend that after discussing our offer you talk to your accountant. They will know you and your business and will assist you in your final decision.
The following is a summary of each of the financial packages we can offer. This will help you decide which is the best package for you. However, we believe a conversation about you and your situation is better than a page of text.
HM Customs and Excise recognise only two types of funding:
At the end of this section under Finance we have prepared a quick reference matrix to allow you to compare the different funding options.
Personal Contract Hire
Personal contract hire is a new product that has been designed for you if you are opting out of a company car scheme and have a company car allowance or just want fixed cost motoring. PCH is a budget friendly alternative to traditional funding methods such as a personal loan or hire purchase. You can get your vehicle without the need for a large deposit, you simply hire the car for a fixed period and at the end, hand it back to the finance company.
To help you plan your budget further you can include a full maintenance package. This includes servicing, general repairs, tyres and road fund license. This only leaves you to sort out your insurance and fuel costs. Please note that if you are using the car for business use you will need to notify your insurance company.
Personal Contract Purchase
Personal Contract Purchase or PCP is another flexible way to finance the vehicle of your choice. It offers motoring at a fixed cost so you know, each month, exactly what you are paying. You can choose the car and the contract that suits your needs. You decide the type of vehicle you want, how long you want to keep it for and your anticipated mileage. After this period, you can either pay the pre-agreed ‘balloon’ payment – which is based on the expected value of the vehicle – and keep the car, or simply hand it back.
The information we have provided is for guidance only. We recommend that you seek professional advice from your accountant and tax office before making a decision based on the information given.
Business Contract Purchase
This funding method combines the fixed prices and operational benefits of contract hire. However, it allows you to own the vehicle at the end of the term at a pre-determined payment (balloon payment). The balloon payment is set to represent the residual value of the vehicle based on the mileage and term length stated. If you do not want to purchase the vehicle at the end under most contracts you can hand it back to the finance company and have no further cost as long as it is within the mileage and condition terms.
The vehicle will appear on your balance sheet as an asset and is suitable for high value vehicles over £12,000 as it avoids the whole question of restricted tax recovery that are found on Hire Agreements.
A Finance Lease is a product for VAT registered companies who prefer a flexible rental agreement. The ownership stays with the finance company but you bear at least 90% of the residual risk or reward at the end of the agreement.
For your tax purposes, a finance lease is a contract where a car is hired, and there is no pre-planned opportunity to purchase the car. The title of the goods, like contract hire, can never be passed onto your company. The agreement shows on the balance sheet as a leased asset with a corresponding liability.
There are two types of Finance Lease generally available to you. The first is a Residual Value Lease. This provides fixed monthly payments over the period of the contract followed by a ‘balloon payment’. The second is a ‘fully Amortised Lease’ . On this type of lease the monthly payments account for the entire value of the vehicle over the contract period.
Hire and Lease Purchase
This is the traditional method of funding a new vehicle. It is a straight forward finance agreement where title passes to you when all payments have been made. The purchase VAT can not be reclaimed unless your vehicle is being used for 100% business use. After you have paid an initial payment (deposit) the balance of the purchase price, plus charges are repaid over a fixed period by fixed monthly payments. Unlike Hire Purchase, Lease Purchase has a balloon payment that is set to represent the anticipated value of the vehicle at the end of the term. With both of these agreements, the risk of resale value, repairs and maintenance lies with you.
Contract Hire is simply a method of hiring motor vehicles for use over an agreed time and mileage without ownership. The monthly rental is fixed (often referred to as an Operating Lease). This can include a range of additional services such as servicing, maintenance, tyres and road fund license. This method of funding is a popular choice for VAT Registered companies with more than 40% of companies choosing this method. The term of the contract can range from 12-48 months and usually up to 120,000 miles.
(1) You can only claim 50% of the VAT on the finance element if you are using the car for private use. 100% if it is business use only (e.g Pool car). All VAT is recoverable on the Maintenance element as this is a business expense.
(2) If the List price of your vehicle is more than £15,000, the amount that can be allowed against tax is reduced. If it is less, 100% can be allowed, this is called the half excess rule, see example below:
Invoice Price + £15,000 / 2 x Invoice Price / 100 % tax allowable
If you have any questions on financing on one of our cars please do not hesitate to contact us.
AMARI™ Lifestyle Ltd T/A AMARI™ Super Cars GB is a credit broker and intermediary. We operate with a restricted panel of lenders from whom we may be paid a commission.