PCP payments as a sole trader
Discussion
Does anyone know if PCP payments are offset'able against tax for a sole trader?
At the moment I claim 45p a mile against taxable income for my business mileage (I do about 8,000 miles a year out of a total of 10,000 miles), but I'm thinking of buying an (expensive) new car on PCP which, if I could claim 80% of the monthly cost, would work out at much more than £3,600 I currently claim.
If so, what about the deposit I also will be paying.
Any ideas? I'm not expecting to be able to, but thanks in advance, I've had a google but as ever with the HMRC, it's not clear.
At the moment I claim 45p a mile against taxable income for my business mileage (I do about 8,000 miles a year out of a total of 10,000 miles), but I'm thinking of buying an (expensive) new car on PCP which, if I could claim 80% of the monthly cost, would work out at much more than £3,600 I currently claim.
If so, what about the deposit I also will be paying.
Any ideas? I'm not expecting to be able to, but thanks in advance, I've had a google but as ever with the HMRC, it's not clear.
Edited by audi321 on Tuesday 4th July 01:25
The simple answer is that PCP payments, like any form of finance costs, can be offset against the income of a sole trader activity provided -
i) the costs being claimed are wholly and exclusively for the purpose of the trade
ii) the costs being claimed relate to the cost of borrowing and not the capital repayment element
iii) the trader is 100% clear of the nature of the PCP i.e. whether it is a Hire Purchase, a Finance Lease or an Operational Lease (it's not always clear)
If the PCP is in respect of a "Motor Car" there will be certain restrictions on the claims that can be made. If the vehicle is classified as a "Commercial Vehicle" the tax treatment is more generous. There are also concessions for low emissions and electric vehicles.
I would guess that people who do not use accountants get these types of matters completely wrong in their Self Assessment tax returns. Even some accountants aren't always right in such matters.
i) the costs being claimed are wholly and exclusively for the purpose of the trade
ii) the costs being claimed relate to the cost of borrowing and not the capital repayment element
iii) the trader is 100% clear of the nature of the PCP i.e. whether it is a Hire Purchase, a Finance Lease or an Operational Lease (it's not always clear)
If the PCP is in respect of a "Motor Car" there will be certain restrictions on the claims that can be made. If the vehicle is classified as a "Commercial Vehicle" the tax treatment is more generous. There are also concessions for low emissions and electric vehicles.
I would guess that people who do not use accountants get these types of matters completely wrong in their Self Assessment tax returns. Even some accountants aren't always right in such matters.
The Benefit in Kind rules only apply to employees and/or directors. If the business is being run as a sole tradership then the BIK rules do not apply.
The only restriction that needs to be applied is an adjustment for the private use proportion which the trader has to work out for himself (honestly) and apply to his tax calculations and capital allowance claims.
The only restriction that needs to be applied is an adjustment for the private use proportion which the trader has to work out for himself (honestly) and apply to his tax calculations and capital allowance claims.
audi321 said:
Thanks Eric. Much appreciated.
It's not a commercial vehicle. But it is electric if that makes a difference?
New electric vehicle on PCP should qualify for 100% WDA on the total price of the vehicle. Speak to an accountant that knows about this, has pros and cons but worth serious investigation as you could save a large bundle in tax. Obs no BIK, but you will have to "pay" for the personal element.It's not a commercial vehicle. But it is electric if that makes a difference?
Just to re-iterate what I said above, if the PCP is a "Lease" arrangement rather than an "HP", the business will not be able to claim Capital Allowances on the vehicle.
Capital Allowances can only be claimed on owned assets An asset funded by a loan is looked on as "owned" from day one. HPs are treated as "loans" for Capital Allowance purposes.
Leases are different because the legal form means that the asset is always owned by the leasing company. The leasing company will therefore be claiming the Capital Allowances on that asset..
People acquiring assets for a business should always consider the tax rules surrounding the various finance arrangements available before making a final decision as to what type of finance they think is appropriate.
Capital Allowances can only be claimed on owned assets An asset funded by a loan is looked on as "owned" from day one. HPs are treated as "loans" for Capital Allowance purposes.
Leases are different because the legal form means that the asset is always owned by the leasing company. The leasing company will therefore be claiming the Capital Allowances on that asset..
People acquiring assets for a business should always consider the tax rules surrounding the various finance arrangements available before making a final decision as to what type of finance they think is appropriate.
First of all, if it says "Hire Purchase" at the top of the agreement, then it is LIKELY that it is, actually, a Hire Purchase agreement.
However, it isn't always the case. The next step is to read, very carefully, the small print on the back of the agreement which should state at what point ownership passes to the person/business acquiring the asset.
Also, if you have received an actual invoice for the acquisition of the asset, check to see who the "purchaser" is named as on the invoice. Sometimes it will be your business (which is good) but sometimes it might be the finance company - which is not good as that indicates that they want to show the asset as being theirs and they intend to reclaim any tax reliefs going.
It's actually not that easy these days to ascertain exactly what type of legal arrangement you are getting into - and it's the legal arrangement which will determine how the acquisition is treated for tax purposes.
Finally, do not take the word of the person at the dealers who you are negotiating with. They -
a) are keen to make a sale as their commission depends on it and they are likely to tell you what they think you want to hear
b) they don't always know the legal niceties of the products they are selling
The "handing the car back" bit at the end indicates to me that this is a "Lease" arrangement and possibly none of the Capital Allowances that would normally accrue to your business will be available if you go down this particular PCP route.
However, it isn't always the case. The next step is to read, very carefully, the small print on the back of the agreement which should state at what point ownership passes to the person/business acquiring the asset.
Also, if you have received an actual invoice for the acquisition of the asset, check to see who the "purchaser" is named as on the invoice. Sometimes it will be your business (which is good) but sometimes it might be the finance company - which is not good as that indicates that they want to show the asset as being theirs and they intend to reclaim any tax reliefs going.
It's actually not that easy these days to ascertain exactly what type of legal arrangement you are getting into - and it's the legal arrangement which will determine how the acquisition is treated for tax purposes.
Finally, do not take the word of the person at the dealers who you are negotiating with. They -
a) are keen to make a sale as their commission depends on it and they are likely to tell you what they think you want to hear
b) they don't always know the legal niceties of the products they are selling
The "handing the car back" bit at the end indicates to me that this is a "Lease" arrangement and possibly none of the Capital Allowances that would normally accrue to your business will be available if you go down this particular PCP route.
I reckon you won't be getting the Capital Allowances then.
I assume you already have an accountant. If you go ahead with the agreement, he/she will need to read it carefully so the appropriate expense claims and other allowance claims can be made.
With a lease situation, you do get tax relief - it's just claimed in a different way (and that can vary depending on the nature of the lease).
Are you VAT registered?
I assume you already have an accountant. If you go ahead with the agreement, he/she will need to read it carefully so the appropriate expense claims and other allowance claims can be made.
With a lease situation, you do get tax relief - it's just claimed in a different way (and that can vary depending on the nature of the lease).
Are you VAT registered?
audi321 said:
This is a Personal Contract Purchase (PCP) in it's truest form.
- Purchase* = you should add the car to your balance sheet if the business is buting it (with the addition of future liabilities, including the "optional purchase amount", therefore you cannot claim the tax on the actual repayments.
And, as I understand it, the contract must be in the name of the business. Also, be aware that you may have "balancing charges" when you dispose of the car (the difference between the value of the car on the book, and the final price you sell it for).
Speak to a real accountant, one that knows what he/she is doing.
For reference, this is exactly what I did. I signed a company (albeit LLP) CP agreement with a deposit, some payments for 3 years and an optional final payment and, as I bought a low emissions vehicle, the accountant wrote off a large portion against tax.
https://www.tesla.com/en_GB/models/design
If you go to the right hand side (in black) you can see 3 tabs - Cash, Contract Purchase and Hire Purchase.
Surely the PCP is not the same as the HP?
Confused.com
If you go to the right hand side (in black) you can see 3 tabs - Cash, Contract Purchase and Hire Purchase.
Surely the PCP is not the same as the HP?
Confused.com
audi321 said:
https://www.tesla.com/en_GB/models/design
If you go to the right hand side (in black) you can see 3 tabs - Cash, Contract Purchase and Hire Purchase.
Surely the PCP is not the same as the HP?
Confused.com
I've never seen a Tesla agreement but a PCP contract is a hire purchase agreement in terms of the law. Most will say "regulated hire purchase agreement" on them. In terms of accounting it is an asset you are purchasing.If you go to the right hand side (in black) you can see 3 tabs - Cash, Contract Purchase and Hire Purchase.
Surely the PCP is not the same as the HP?
Confused.com
papa3 said:
audi321 said:
https://www.tesla.com/en_GB/models/design
If you go to the right hand side (in black) you can see 3 tabs - Cash, Contract Purchase and Hire Purchase.
Surely the PCP is not the same as the HP?
Confused.com
I've never seen a Tesla agreement but a PCP contract is a hire purchase agreement in terms of the law. Most will say "regulated hire purchase agreement" on them. In terms of accounting it is an asset you are purchasing.If you go to the right hand side (in black) you can see 3 tabs - Cash, Contract Purchase and Hire Purchase.
Surely the PCP is not the same as the HP?
Confused.com
The cardinal rule with HMRC is that only one business can claim Capital Allowances on a specific asset. If the ownership OR THE LEGAL RIGHTS OF POSSESSION vest in the person or business hiring the asset at the moment in time the agreement has reached the end of its set period, then it is deemed to be owned by the hirer from the start and they can claim the Capital Allowances.
If ownership only passes AFTER the original agreement has ended and all the payment obligations have been fully settled BUT a further payment (no matter how small) has to be paid AFTER the end of the original agreement period in order to obtain ownership - then it is a LEASEand it is the leasing company who will be claiming the Capital Allowances.
I have seen many accountants get this wrong.
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