One of the most common times I receive phone calls or emails, is when one of my many Driving Instructor Clients is considering changing their car.
Should you buy, lease or go for a PCP ?
Buying a car outright can be very tax advantageous as a Driving Instructor’s Car will have Duel Controls fitted which means it is classed as Plant & Machinery in respect of the Capital Allowance rules.
Under the current Annual Investment Alllowance rules for Plant & Machinery Purchases you can opt to claim 100% of the cost which can be offset against your Taxable Income for the year.
In some cases, this could reduce your Tax Bill to Zero for the year and if you have made payments on account, you will receive a refund of some or all of this payment.
Consider the fact that you may need to put some or all of this refund aside for future tax bills.
Instead of claiming 100% of the cost you can claim 18% of the cost instead which will still reduce your tax bill.
Each year you continue to claim 18% of the remaining balance of the capital allowance.
Longer term this may be more beneficial, depending on personal circumstances of which everyone can and is often different.
Any interest costs incurred in financing your purchase can be entered into your Accounts as an allowable expense each year throughout the term of the loan.
If you decide to lease a car you can enter the monthly payments for the lease as allowable expenses into your accounts for the length of the lease agreement.
As you do not own the car, you cannot claim any Capital Allowances so the impact on the Tax Position is more of an increase to monthly allowable expenditure which will reduce your net profit thereby reducing your tax liability.
With a car lease you agree the number of miles per annum that you are permitted to drive. The higher the mileage the higher the monthly charges.
If you exceed the agreed limit there will be a financial penalty after the car has been returned to the supplier. This is usually set out as a cost per mile exceeded in the lease agreement so you should be aware of any future costs as you move through the term of the lease.
As Driving Instructors generally have a high annual mileage this can be a disadvantage when deciding the best method of obtaining a new car.
At the end of the lease, you simply hand the car back leaving you free to take out another lease for a new car.
In addition to excess mileage charges there may be penalties for any damage to the bodywork, and would be advisable to ensure repairs are carried out prior to returning so you can be in control of the level of costs potentially incurred.
You can opt to include a maintenance element to the lease which usually covers all costs for servicing and tyres, but would not cover any damages.
PCP means Personal Contract Purchase and sits in the middle of Purchasing outright and leasing.
You pay monthly payments for an agreed term and at the end of the term you have the option to either return the vehicle or buy the vehicle.
To buy you simply pay the balloon payment agreed in the PCP contract.
If you return the vehicle you can opt to take out another PCP for a new car offsetting any value left in the current car in part-exchange.
However, as with leasing, there may be penalties for excess mileage over and above any agreed limit and for any damages which could reduce the value of the car and / or result in a payment being required.
As a Purchase agreement you can use the Capital Allowance options or you can put through as lease costs until the end of the term.
You could then put the balloon cost through as a purchase and claim capital allowances at the end on the smaller amount.
If you are a Driving Instructor and would like to receive my eBook "Answers to the Most Common Questions Asked by Driving Instructors" feel free to contact me
Tim J Seymour
TJS Business Solutions Ltd
Accountant & Business Advisor
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