ChrisP wrote:

Very few large companies buy cars now they are all of balance sheet on CH are they all "mental" too ?

"Very few large companies buy cars now they are all of balance sheet on CH are they all "mental" too ?"

yes but we aren't talking about large companies (or are we) who tend to do nearly everything differently than an individual.. including how and when they choose to pay tax.

re: cash, I also assumed we meant paying cash-in-hand not cash-borrowed-from-somewhere-else?

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2010 TDV8 HSE - ooo laa laaaaaaaaa
2007 TDV8 HSE - superb car and very reliable
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2012 - dearly departed, sadly missed.. to return in late 2013 with a new TDV8!

The reason 'contract hire' became popular was because a company could get a gross return on its own capital used in its mainstream activities that was higher than they paid the hiring company for the use of their money.

Most car finance companies were owned by Banks.

A large company puts its cars on finance for various administrative and tax reasons and also because their finance is 'off balance sheet' it is not counted in the performance measures (RoI) that investors use to calculate their performance - so it looks like they are making a better return.

Progressive governments' have changed the tax rules so there is now little to be gained in the tax allowances.

If you can buy with a discount that is greater than the sum of interest charges and the interest you will loose on your own capital then a 'cash' purchase will win. However if you can make a high return from your own investment (or don't have the capital in the first place) a large contract hirer may do better. Bear in mind the value quoted for residuals are forecastes and exclude optional extras and, if the disposal is via and auction may be at least 15% too high. A cash buyer will normally sell privately or part exchange which will make the 'value', their retained capital, 15% or 20% higher than the forecast Glasses Guide residual

As an econometrician I've done these analyses for many clients and the decision is alway tight and will be unique for each person or firm. Build yourself a cashflow spreadsheet and be very realistic with the numbers. There is a technique called Discounted Cash Flow that can help you bring every payment back to an equivalent value today so you can add all the costs together and compare "apples with apples".

My whole point is if you do drop £53K of cash it has to come out of taxed income so effectively it's costing you £88K in gross earnings.
Makes no difference if its Corporate or Personnel PCP why would you not do that rather end up with maximum after depreciation of £35K in 3 years? MY2011 HSE Santorini/Ivory/Piano Black/Privacy Glass/TV .Sadly gone.
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ChrisP wrote:

My whole point is if you do drop £53K of cash it has to come out of taxed income so effectively it's costing you £88K in gross earnings.

ChrisP wrote:

My whole point is if you do drop £53K of cash it has to come out of taxed income so effectively it's costing you £88K in gross earnings.
Makes no difference if its Corporate or Personnel PCP why would you not do that rather end up with maximum after depreciation of £35K in 3 years?

rrsboy wrote:

ChrisP wrote:

My whole point is if you do drop £53K of cash it has to come out of taxed income so effectively it's costing you £88K in gross earnings.

you are paying with taxed income if you take out car finance, also?

I blame the accountants for all these complex rules  ON THE WAY: BMW F21 M140i
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ChrisP wrote:

That's my whole point doing it the way I do you don't it comes out of turnover and in addition by paying the largest personal contribution allowed it reduces personal tax liability too. Also remember a proportion of the VAT is refundable too,not all because of the proportion of personal use of the car.

Perhaps he didn't have a "creative" accountant by the sound of it

Differing opinions on which way to go!

This is the CH option presented to me this morning,
2 Years CH.
£27,000 in total.
£13500 per year.
£1125 per month.
This includes VAT,
all servicing.
RFL.
Breakdown assistance.
replacement tyres under fair wear and tear policy,
Puncture repair.

Benefits to my business. I can reclaim 50% of VAT on Finance element and 100% of VAT on maintenance.
Tax relief on 85% of rental allowance on taxable profits.

Now the private purchase option.
If I was to purchase a 2010 model I would be looking at what?
24000 miles in 2 years so 1 set of tyres?
RFL £460 per year?
2 Services?
An MOT
so say £36k for the car, plus £920 for RFL, £1k for servicing and MOT work? £600 for tyres? Extended warranty?
So whats that? £39,000? And resale value in 2 years would be £22k?(or less if the 1k per month depreciation figure from earlier is used) So a cost of £17k for 2 years.

Ok so a difference of 10k, but take into account that the cost of private ownership means that I have already paid tax on that money at 40%, and that the CH cost includes VAT that I can claim back.

I need to talk to a good accountant! 325d m sport coupe looking to change to RRS

gavink, see about - what if the taxman questions whether the car is being used 100% for business, which will affect VAT amongst other things?  ============
2010 TDV8 HSE - ooo laa laaaaaaaaa
2007 TDV8 HSE - superb car and very reliable
============
2012 - dearly departed, sadly missed.. to return in late 2013 with a new TDV8!

I pay 100% of what should be paid in income tax so no worries for me with HMR&C ?
I pay a large contribution to monthly rental back to the company for private mileage use which reduces my personal tax and also pay for all of my private fuel at the generally acceptable rate per mile.
This has worked for me for 5 years now and compares very favourably with what I was doing before on my 2 MBZ's where I owned them and claimed a monthly mileage charge based on what they actually cost me which worked out at about £1/mile across the year and then paid income tax on the amount over the IR allowance rates on my year end return.

Another thing to add into the equation is VAT on fuel which is significant on £500/ month. MY2011 HSE Santorini/Ivory/Piano Black/Privacy Glass/TV .Sadly gone.
Audi A5 Sportback Black Edition 3.0 tdi quattro S Line

With all due respect Chrisp I think you are confusing yourself and comparing apples with oranges.
Pre-tax and after tax cash is an irrelevance as cars are not fully depreciated and tax deductable in the year of expenditure.

If you're happy with your arrangments then stick to them but I'm afraid you and/or your accountant are mixing 'cash', economic values, inflation rates, interest on borrowing (not the simple way finance house try and fudge the true rates) and the possible returns available from using the capital tied up in a car for other purposes.

Believe me few accountants actually undertstand interest rates e.g. 1% per month is almost 13% pa, yet 5% simple repayment rates can, (because of the declining debt) be more than 12% pa. If you could find a good investment that will pay over 12% you'd be doing well.

With all due respects as I said earlier I'm no expert but my accountant is and he is saving us a fortune when the bigger picture is taken into account.
As yet nobody has put up any contra figures showing that either paying cash or straight finance is any cheaper when ever single factor including income tax liability is considered. MY2011 HSE Santorini/Ivory/Piano Black/Privacy Glass/TV .Sadly gone.
Audi A5 Sportback Black Edition 3.0 tdi quattro S Line