UK - Business Contract Purchase (BCP) or Contract Hire

[Ross]

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

Exactly right. I bought my Taycan 90k
Tax benefit 17k.
Sold it for 96k
Tax burden 18k
Still 5k better off
You can’t have your cake and eat it unfortunately. It’s why you can’t claim 20% VAT back as well as 19% Corp Tax as the government would effectively be paying for your Taycan and giving you 20k.
The 2022 18k tax bill from selling the 4S is offset by the 21k tax benefit of buying the GTS for the 1/10/2023 tax bill

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[Rob********]

As long as the business is party that leases the car, whether contract hire or BCP , all the tax breaks are available (and in the case of contract hire, the VAT breaks).

BCP may be worse than buying, but it will save me hassle at the end and if the car has been a good one, my options are open.

Interesting to see the different methods being used though. This is my first venture into EVs so im not sure what the second hand market is/will be so out right purchase probably not for me this time.

 

[Boss Hogg]

I took Porsche lease and paid it under SS. If you go down this route, ask for a quote for service and maintenance (inc tyres) package, was only £2,700 for 54k miles over 3 years, excellent value for c. 3 services and c. 4 sets of tyres (had my first new set at 13k miles).

 

[TaycanHero]

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)?

Long post warning!

I know and this is principally why the Taycan is selling like hot cakes despite its eye-watering price tag - business owners and tax breaks combined with inflation... No point leaving that money sitting there.

To hugely simplify this, let's say there are two scenarios for:

Business (limited company):
1. You are a sole director with no employees other than you.
2. You are a sole director or one of many directors and you have multiple employees.

And income:
1. You pay yourself minimum salary + dividends up to the higher divi rate (circa £50k income annually)
2. You pay yourself a salary of £100k yearly.

Many Taycan company car purchases fall into 1 and 1, which makes expensing a Taycan more simple. If you are 2 and 1, or 2 and 2, or 1 and 2, then that will drastically change your financial situation and you must speak to your accountant.

We will focus on 1 and 1 as that's the most simplistic. This cohort is wealthy individuals (who expense a lot, so don't be deceived by the lowish income), and who have a huge amount of cash sat in their business doing nothing.

Inflation is now eating away at that by 10%+ a year, and you are extremely limited as to how you can invest that cash without forfeiting BADR, or otherwise ending up with an enormously complex tax situation.

For any financing deal, be it CH (lease), PH or PCP, let's assume an interest rate of 7%, and a 3 year term, with the difference being. CH is dead money with no interest payments:

• CH - you don't want to keep the car, you just want to rent it
• PH - you want to buy the car, but would rather not pay in full
• PCP - you are not sure about either of the above, and also want the option to put down a deposit for another vehicle.

In each of these scenarios, let's quickly look at the numbers:

• CH - assume £1,500 per month (optioned) for a GTS ST. Three years = £54,000. Purchase price was £125,000. Is a GTS ST going to sell for £71,000 three years after purchase? I think more realistically it would sell with an average mileage and good condition for about £80-85k (conservative) meaning you have probably lost anywhere between £10-20k by leasing.
• PH - you put down a £25k deposit and finance the rest. At 7% AER that is c£14,000 above MSRP you are paying over the term and that will come on conditions e.g. annual mileage limits, where you can drive it even.
• PCP - As above, but the balloon slightly reduces your interest payments, so let's assume interest payments of £10,000 over the term.

Through all of the above scenarios, inflation is eating away at your money at 10% annually. It may well be more than that. Let's factor that in:

On a purchase price of £125,000.
Year one: £112,500
Year two: £101,250
Year three: £91,125 (your £125k cash has lost this much value just by sitting in a bank)

Notice how by year three, the estimated depreciation in fiat is near to the likely selling price of a three year old GTS?

So now it begins to make more sense to pay cash outright for the car.

Leasing is just stupid in this scenario unless you are a criminal; RH and PCP also silly where you are paying up to £15k+ over MSRP in interest payments. If you have the cash, that too makes no sense unless you are 100% confident investing that cash will give you a bigger return than the interest payments on your Taycan.

Finally, corporation tax. In year one you write off £125,000 off your corp tax bill. That is a £23,750 tax saving.

Let's assume you sell your Taycan at year three, at the upper price estimate of £91,000. We will be in 25% corp tax land by that time.

Corp tax: £22,750.

So you basically break even on the corporation tax, but outpace inflation had you never spent the money.

BIK at 2% until 2025, but then that would be paid on other finance terms as well.

This is why it makes more sense for those in scenario 1 and 1 to buy their Taycan outright.

If you are taking a big salary or dividends or both and/or you have employees, then your tax situation is a lot more complex. It might make sense to finance, but that is something your accountant will advise on. You should still run the numbers where it could make sense to buy the Taycan outright.

 

[Ross]

That is 100% correct!
Backing up my post with lots more mathematics!
I am 1 and 1 except my wife is a director of my company so she has a free electric car too!
"My other car is and Etron"
But there is not loads of cash in my Co. I dont work hard enough!
I didnt have the cash but I did have a 50k bounce back loan (1%!) which I got
to use as an enormous deposit(s)
I pay a bit of interest on the balloon payment with Porsche finance but it is still
cheaper than a lease while retaining the possibility of selling the car for a great price!
I think TaycanAccountingHero definitely conservative with 80-85 future value in the example.
Waiting list, GTS exclusivity, its a Porsche, low mileage, sensible spec and shift from ICE to will keep residuals super strong for years.
Imagine how annoyed you would be at the end of a 3 year lease if you popped your number
plate into Webuyanycar (because you know you will!) and found out it was worth only 12k less than the list price 3 years ago and you have spent £54k on lease fees.
Watch this thread for my post in 2 years to see whether my gamble was a win or lose!

 

[Rob********]

Great analysis. I'm in categories 2 and 1 above and as long as the company is the entity taking on the agreement, then Contract Hire, BCP or purchase all work and get the various reliefs available.

 

[TaycanHero]

That is 100% correct!
Backing up my post with lots more mathematics!
I am 1 and 1 except my wife is a director of my company so she has a free electric car too!
"My other car is and Etron"
But there is not loads of cash in my Co. I dont work hard enough!
I didnt have the cash but I did have a 50k bounce back loan (1%!) which I got
to use as an enormous deposit(s)
I pay a bit of interest on the balloon payment with Porsche finance but it is still
cheaper than a lease while retaining the possibility of selling the car for a great price!
I think TaycanAccountingHero definitely conservative with 80-85 future value in the example.
Waiting list, GTS exclusivity, its a Porsche, low mileage, sensible spec and shift from ICE to will keep residuals super strong for years.
Imagine how annoyed you would be at the end of a 3 year lease if you popped your number
plate into Webuyanycar (because you know you will!) and found out it was worth only 12k less than the list price 3 years ago and you have spent £54k on lease fees.
Watch this thread for my post in 2 years to see whether my gamble was a win or lose!

Ha well some basic maths and there is much I have missed off save writing an essay. The complexity of tax is absurd and such an unproductive use of time.

Etron is a very nice car - and that is great you can team up with the wife. Lots of income and tax benefits via a ltd company.

I skipped the BBL only because I couldn't see a way of accounting for it in any beneficial way, otherwise I would have taken it - free money. Fair play you have used it for something that brings joy and happiness, something this world needs more of! And at 1% interest, why not?

Your financial decision is sound. I've decided to pay outright for the car only to use up some retained profits on something that is easy to account for and where I am predicting the car will depreciate slower than fiat depreciation by way of inflation.

I did open an SPV earlier this year to loan another chunk of cash for property development, but the punitive taxes (again ) put that one to bed quite quickly.

Agree re: GTS residuals and who knows. If there are further commodity shocks going into 2025, then these EV cars will appreciate in value, not least for the scrap value.

Let's see where we are at in 2-3 years time. On the flip side, I do think if BIK is increased to even 4% (or more), there will be a flood of sellers on the market, not least as Mercedes and other marques are likely to release direct competitors to the Taycan.

The RWD and 4S might struggle in that environment, only because they are by far the most popular Taycan models. Supply and demand...

 

[gusone]

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.

You talk about the current market. The current wait for a Taycan is 70 weeks according to my EV lease company. A lot can change to the value of a car by then.

 

[AlexG]

Long post warning!

I know and this is principally why the Taycan is selling like hot cakes despite its eye-watering price tag - business owners and tax breaks combined with inflation... No point leaving that money sitting there.

To hugely simplify this, let's say there are two scenarios for:

Business (limited company):
1. You are a sole director with no employees other than you.
2. You are a sole director or one of many directors and you have multiple employees.

And income:
1. You pay yourself minimum salary + dividends up to the higher divi rate (circa £50k income annually)
2. You pay yourself a salary of £100k yearly.

Many Taycan company car purchases fall into 1 and 1, which makes expensing a Taycan more simple. If you are 2 and 1, or 2 and 2, or 1 and 2, then that will drastically change your financial situation and you must speak to your accountant.

We will focus on 1 and 1 as that's the most simplistic. This cohort is wealthy individuals (who expense a lot, so don't be deceived by the lowish income), and who have a huge amount of cash sat in their business doing nothing.

Inflation is now eating away at that by 10%+ a year, and you are extremely limited as to how you can invest that cash without forfeiting BADR, or otherwise ending up with an enormously complex tax situation.

For any financing deal, be it CH (lease), PH or PCP, let's assume an interest rate of 7%, and a 3 year term, with the difference being. CH is dead money with no interest payments:

• CH - you don't want to keep the car, you just want to rent it
• PH - you want to buy the car, but would rather not pay in full
• PCP - you are not sure about either of the above, and also want the option to put down a deposit for another vehicle.

In each of these scenarios, let's quickly look at the numbers:

• CH - assume £1,500 per month (optioned) for a GTS ST. Three years = £54,000. Purchase price was £125,000. Is a GTS ST going to sell for £71,000 three years after purchase? I think more realistically it would sell with an average mileage and good condition for about £80-85k (conservative) meaning you have probably lost anywhere between £10-20k by leasing.
• PH - you put down a £25k deposit and finance the rest. At 7% AER that is c£14,000 above MSRP you are paying over the term and that will come on conditions e.g. annual mileage limits, where you can drive it even.
• PCP - As above, but the balloon slightly reduces your interest payments, so let's assume interest payments of £10,000 over the term.

Through all of the above scenarios, inflation is eating away at your money at 10% annually. It may well be more than that. Let's factor that in:

On a purchase price of £125,000.
Year one: £112,500
Year two: £101,250
Year three: £91,125 (your £125k cash has lost this much value just by sitting in a bank)

Notice how by year three, the estimated depreciation in fiat is near to the likely selling price of a three year old GTS?

So now it begins to make more sense to pay cash outright for the car.

Leasing is just stupid in this scenario unless you are a criminal; RH and PCP also silly where you are paying up to £15k+ over MSRP in interest payments. If you have the cash, that too makes no sense unless you are 100% confident investing that cash will give you a bigger return than the interest payments on your Taycan.

Finally, corporation tax. In year one you write off £125,000 off your corp tax bill. That is a £23,750 tax saving.

Let's assume you sell your Taycan at year three, at the upper price estimate of £91,000. We will be in 25% corp tax land by that time.

Corp tax: £22,750.

So you basically break even on the corporation tax, but outpace inflation had you never spent the money.

BIK at 2% until 2025, but then that would be paid on other finance terms as well.

This is why it makes more sense for those in scenario 1 and 1 to buy their Taycan outright.

If you are taking a big salary or dividends or both and/or you have employees, then your tax situation is a lot more complex. It might make sense to finance, but that is something your accountant will advise on. You should still run the numbers where it could make sense to buy the Taycan outright.

I think the main point your analysis misses is that leasing is actually half the cost you have here because you could (and many do) choose to pay themselves a higher salary

It’s also not a “corporation tax saving” surely, it’s a deferral?

 

[Rob********]

Director of Ltd Co - low salary, mostly dividends

 

[TaycanHero]

I think the main point your analysis misses is that leasing is actually half the cost you have here because you could (and many do) choose to pay themselves a higher salary

It’s also not a “corporation tax saving” surely, it’s a deferral?

True, but my scenario assumes you are not paying higher rate taxes and are instead looking at ways to use company money tax efficiently that benefits you personally e.g. a company car.

Leasing crystallises your "losses" as you otherwise would have owned an asset that will always have a high residual value.

I'm struggling to see the upside of leasing a luxury vehicle that has high residuals. Were it a Peugeot e208 or a Ford E-Transit then it probably would make more sense.

There also may be a way of disposing of the Taycan by gifting it (distribution) to shareholders, at which point only BIK is payable. Hence, tax planning might come undone in your scenario where you could have indeed avoided paying corp tax and instead pay personal tax on the residual value as BIK.

I am not an expert in this domain and this is where it does get very complicated!

That said, please do excuse my miswording. I do mean a corp tax deferral - though that does assume you sell the vehicle. That is what I do understand vs "gifting" a company car, but the point is: there may be highly tax efficient ways to buy your Taycan via a ltd co and then dispose of it without paying high or even any corp tax.

That would see a considerable saving vs any financing and certainly by bending over to Mr Taxman and taking that surplus cash as salary or divis. Christ, I just shuddered.

 

[AlexG]

Thanks Rob - have you run a variation with paying yourself a salary for salary sacrifice?

 

[Ross]

You talk about the current market. The current wait for a Taycan is 70 weeks according to my EV lease company. A lot can change to the value of a car by then.

Absolutely right. This is of course a major reason why, if you are getting one next month, it will have very good residuals!

 

[TaycanHero]

Director of Ltd Co - low salary, mostly dividends

Excellent work, thank you for this!

It seems - at least for biz owners like you and I in a similar situation - paying cash is the more optimal choice for tax and finance reasons.

The scenario looks even better should the Taycan sell for more than £60k after 4 years and I should imagine the numbers look quite similar over a two or three year period instead.

Additionally, I will speak to my accountant about creative ways to dispose of the Taycan. There may well be a more optimal way of doing it than just selling it in a conventional way and then putting it back into the P&L.

The things I could have done to contribute to society were it not for obscene corp tax payments...

 

[Rob********]

Thanks Rob - have you run a variation with paying yourself a salary for salary sacrifice?

As my salary is low, I don't pay any income tax on it or NIC and saving on these elements is the reason to use salary sacrifice, so I haven't considered that route.

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