Sole Trader - Partnership - Limited Company Purchase Schemes
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PCP has been developed and has been increasingly used since the introduction of the new company car tax rules brought out in 2002. Many individuals crippled with the Benefit in Kind tax have opted for this method of funding their cars.

As with Contract Purchase & Contract Hire, the chosen terms of the contract i.e. age, mileage and duration will determine the balloon payment.

At the end of the agreement the purchaser may pay the balloon and take ownership or simply hand the car back to the provider. Obviously, charges will be made for excess mileage and any damage, which is considered to be over and above Fair Wear and Tear.

This form of contract is between an individual and a provider and therefore the individual will not be liable to pay Benefit in Kind tax.

Benefits of Personal Contract Purchase

• Low initial deposit
• No benefit in kind tax
• Fixed payments
• Maintenance package facility
• You can drive the car of your choice
• No risk on the residual, subject to mileage and condition
• Optional final payment
• Eventual ownership if required

PCH is a Contract Hire Agreement for Private Individuals. It works in exactly the same way as Contract Hire for companies with the exception of the VAT. Companies can reclaim this element, whereas with PCH, it is inbuilt into the monthly payment.

Deposits are low, normally equivalent to three monthly payments. The payments are based on the term of the agreement and the expected mileage. Excess mileage will be charged to the user at a few pence per mile.

Maintenance packages can be included in these agreements, which include your road fund licence.

At the end of the contract you simply hand the car back and then you can start again with a new car.

Benefits of Personal Contract Hire

• Low initial deposit
• Fixed Monthly rentals
• Maintenance and road tax can be included
• No depreciation to worry about
• No disposal issues
• Loan car if yours is off the road
• Flexible terms

Contract Hire is the leasing of a vehicle for a fixed period of time at a fixed monthly rental.

The choices of vehicle and contract terms are flexible to meet your individual needs and requirements.

Contract Hire enables companies to release cash normally tied up in outright purchase and allows them to opt for a low deposit followed by fixed all-inclusive monthly rental. The low costs attributed to CH is because the financial lender is able to reclaim the VAT on the new car and pass the savings onto the hirer in the form of low monthly rentals

Contract Hire has a market share of 40% and is still rising. The Leasing company calculates a residual value for a vehicle at a set age and mileage contract and charges the user a monthly fee to cover the depreciation over that period plus a funding charge along with add-on services such as maintenance and gap insurance. See details.

At the end of the duration of the contract, the vehicle is sent back to the provider with no further obligation to either party, subject to terms and conditions.

Benefits of Contract Hire

• Low initial outlay
• Flexible rental pattern
• Fixed monthly costs which can include maintenance
• More capital available for your core business
• Off-balance sheet borrowing
• No depreciation risk
• No disposal problems
• VAT on rentals reclaimable if Maintenance included.
• Administration & Management transferred to provider.

Hire purchase still commands a 25% share of the market although it is one of the original methods of funding vehicles. This is available to both companies and private individuals who wish to purchase their vehicles outright.

This facility may attract people who wish to pay a varying deposits and wanting agreements up to a 60month period.

Hire Purchase will still be an attractive option for certain businesses who are not VAT registered and want their cars to appear as assets in their company accounts. In addition the vehicle can be written down for taxation purposes and all interest charged can be reclaimed.

Benefits of Hire Purchase

• Simple
• Fixed interest rates from the outset
• Variable deposits
• Ownership of vehicle
• Alternative credit line
• No restriction on type of car
• No balloon payment
• Option of early settlement

Lease Purchase is an ideal alternative to bank borrowing for businesses that are not VAT registered and who want eventual ownership of their cars. This is simply a funding scheme that also favours businesses that prefer minimum payments to assist with cash flow. This is because part of the capital cost is deferred until the end of the agreement and has the obvious effect of reducing the monthly payments.

In paying the balloon you complete the agreement and the car is yours to keep. If you trade the car in for another, then any allowance over and above the balloon payment is yours and can be put towards your deposit on your next car. Likewise, if the allowance is less than the balloon, then you are responsible for the shortfall.

Benefits of Lease Purchase

• Eventual ownership
• Low initial deposit
• The car can be written down in your books
• All interest paid can be off-set against tax
• No VAT on payments
• Option to take early settlement
• No restriction on mileage