UK - Business Contract Purchase (BCP) or Contract Hire

[Rob********]

In the UK (elsewhere also I assume) there are tax benefits to getting an electric car via a business. This is my plan and I've placed my order but I'm keen to know whether other UK owners have done this via their limited company by way of a BCP or a Contract Hire route. I am aware each is treated differently for accounting purposes and wonder if there was a consensus of one way being more advantageous than the other?

My business is a VAT registered limited company and I recognise ultimately our accountants will be consulted.

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[jontybutts]

Paying upfront is the most Tax advantageous route, claim back either 100% of the VAT or 50% depending on use and then first year 100% capital allowance write down on profits, it’s a no brainier if your business has the cash flow and the profits, and it should if your looking at a Taycan.

 

[DavidG]

Paying upfront is the most Tax advantageous route, claim back either 100% of the VAT or 50% depending on use and then first year 100% capital allowance write down on profits, it’s a no brainier if your business has the cash flow and the profits, and it should if your looking at a Taycan.

You can only reclaim Vat on contract hire, not on outright purchase.

 

[DavidG]

Sorry unless it is solely for business use, which is unlikely.

 

[Rob********]

Thank you. Paying cash is an option, but ties up a lot of capital and you can't recover any VAT. Whether it works out cheaper or not than other methods also depends on what you can sell it for and the second-hand EV market isn't a known quantity, yet, IMHO.

Business Contract Purchase seems a good method, assuming you can get tax relief on the full value of the vehicle AND on the finance cost element of the deal. So far, on a £102k car cost, the BCP works out (after Corp. tax relief, and personal tax relief, and running costs) to be about £600 per month over 4 yrs.

 

[TaycanHero]

Paying upfront is the most Tax advantageous route, claim back either 100% of the VAT or 50% depending on use and then first year 100% capital allowance write down on profits, it’s a no brainier if your business has the cash flow and the profits, and it should if your looking at a Taycan.

This is precisely what I'm doing via my ltd co: no financing, paying cash for the car.

I don't see the point of paying interest where I don't need to borrow the money. I can write off a large chunk of corp tax and then pay a smaller sum of corp tax when I sell it a few years later.

I'm also gambling that the car depreciation will be less than inflationary depreciation on fiat over that same time period.

 

[AlexG]

This is precisely what I'm doing via my ltd co: no financing, paying cash for the car.

I don't see the point of paying interest where I don't need to borrow the money. I can write off a large chunk of corp tax and then pay a smaller sum of corp tax when I sell it a few years later.

I'm also gambling that the car depreciation will be less than inflationary depreciation on fiat over that same time period.

Not to turn this into an accounting forum but I’d be interested in your analysis, TaycanHero, as it’s of huge interest to UK buyers.

I am wondering how it can possibly be better buying vs a contract hire by your company which then leases the car to you via salary sacrifice, where you would save roughly half the lease cost (if you are a higher rate tax payer)?

 

[AlexG]

Paying upfront is the most Tax advantageous route, claim back either 100% of the VAT or 50% depending on use and then first year 100% capital allowance write down on profits, it’s a no brainier if your business has the cash flow and the profits, and it should if your looking at a Taycan.

Again, would be keen to understand how this could be better than salary sacrifice

 

[LLA53]

This is what I have done on a BCP, you can’t claim any VAT and salary sacrifice assumes you have enough salary to sacrifice, I earn min salary to satisfy NI and the rest in dividends. Contract lease is too expensive add 25% on the monthly costs and if you do do salary sacrifice there are limitations. Cash is king for my business so BCP was a no brainer.

Edit: you can however write the full value off in the first year whether outright cash purchase or finance

 

[Ross]

Nobody should lease or contract hire in current market. Business or private. If a leasing company owns the car it is laughing all the way to the bank as they can sell it for what they payed for it after 2 years and collect 25k in lease payments.
If you own it you might end up with no depreciation as long as you didn’t put 60k of extras on a 2WD and have a free car for 2 years. Why let the Leasing company have all the gravy!?
Business is best with the full tax relief of 100% of 19% of the value of the car instantly written off.
The Ltd Co. must OWN the vehicle for full tax benefits. The company can borrow money to buy the car, just don’t lease! Salary sacrifice is no good as with LLA53 above as directors of their own Ltd companies have tiny salaries and take income in dividends.

 

[AlexG]

Nobody should lease or contract hire in current market. Business or private. If a leasing company owns the car it is laughing all the way to the bank as they can sell it for what they payed for it after 2 years and collect 25k in lease payments.
If you own it you might end up with no depreciation as long as you didn’t put 60k of extras on a 2WD and have a free car for 2 years. Why let the Leasing company have all the gravy!?
Business is best with the full tax relief of 100% of 19% of the value of the car instantly written off.
The Ltd Co. must OWN the vehicle for full tax benefits. The company can borrow money to buy the car, just don’t lease! Salary sacrifice is no good as with LLA53 above as directors of their own Ltd companies have tiny salaries and take income in dividends.

It would be interesting to compare this with salary sacrifice for the OP, and genuinely interested to see how this could be better.

You're talking about saving 19% on the car purchase price, but no VAT as I understand it (if you have any personal use at all?)

With salary sacrifice, you save 45% tax, plus half the VAT - with national insurance etc it's complicated, but you get close to 50% as I understand it - off the lease payments. Regarding your and LLA53's comments re sufficient salary, assuming the business is profitible, what I understand people do is instead of taking a dividend and being taxed anyway, is pay the director (or other employee), for doing work for the company, a salary, and that salary to be sacrificed for a company car benefit.

I think the 2% BIK applies to both?

So you're saying Porsche Finance (or whoever you lease from) is really making enough to wipe that 50% on the monthly payments out vis-a-vis 19% upfront?

Take your point on residual values, but you’re betting on a continuing crazy market for used vehicles, and what will soon be short-range-Taycans compared with the next big thing.

 

[Ross]

The best way to look at it is if the company is buying the car then it’s a 40% tax break anyway because the company is buying the car rather than you taking the money out of the company, paying 40% tax then paying for the Taycan!
PLUS you get 19% of the value of the car off your Corporate Tax bill.
It is a better way of doing it. My accountant runs exactly the same business model as me. He told me to do it!
I do very little business mileage, like so many I just go to work and back and I am not VAT registered anyway.
It’s not about the VAT! Leave it out of the man maths

 

[Rob********]

I’ve calculated all the numbers for Contract Hire (CH), Business Contract Purchase (BCP) and paying cash. CH and BCP are quite close in effective costs per month over the term of the deal so for me BCP wins as it adds flexibility.

Cash is far better BUT this is dependant on the value at the end of the deal and does add hassle/risk of having to sell it.

 

[AlexG]

The best way to look at it is if the company is buying the car then it’s a 40% tax break anyway because the company is buying the car rather than you taking the money out of the company, paying 40% tax then paying for the Taycan!
PLUS you get 19% of the value of the car off your Corporate Tax bill.
It is a better way of doing it. My accountant runs exactly the same business model as me. He told me to do it!
I do very little business mileage, like so many I just go to work and back and I am not VAT registered anyway.
It’s not about the VAT! Leave it out of the man maths

Say you buy the Taycan for 100k, wouldn’t the company be taxed on the 100k gain if you sold it at the same price in two years, cancelling out your 19% (and corporate tax rates are going up!) plus dividend tax (or income tax)? Or is the idea you keep rolling it into the next vehicle

 

[Ross]

I’ve calculated all the numbers for Contract Hire (CH), Business Contract Purchase (BCP) and paying cash. CH and BCP are quite close in effective costs per month over the term of the deal so for me BCP wins as it adds flexibility.

Cash is far better BUT this is dependant on the value at the end of the deal and does add hassle/risk of having to sell it.

Agree with all that!
Just to clarify the key thing is the Ltd Co has to be the registered owner of the vehicle. So no leasing, but does not need to pay cash! I certainly don’t have 100 grand cash floating around my company as I have to take out lots of dividends every month to pay for my drug, alcohol and gambling habits!

Exactly as you say the KEY factor is what the car is worth after the ownership period.

I have the finance figures from Porsche for the impending arrival at the GTS.
Car is £112k. 2 yr deal
The GFV (Guaranteed Future Value) is £72k. This is the guess of what the car will be worth and determines the payments of any finance deal.
The deposit and monthlies are roughly the same as any lease style arrangement.

The trouble is that that future value guess is hugely conservative IMHO.
With waiting times, GTS exclusivity, low mileage and sensible specification my GTS will be worth WAY more than 72k in 2 years. If you lease you hand back the car after paying 40k plus interest over 2 years and the leasing company or Porsche UK, whoever is the owner could sell your car for 98k.
I agree there is a little risk involve but with finance I know my Taycan will never be worth less than 72k but if it is worth 98k I am 26k better off than if I had leased!
This offsets the ‘hassle’ of having to sell the Taycan!

My 4S had a GFV of 60k. I sold it to webuyanycar for 96k. If I had leased I would have lost £36,000!

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