I'm Confused - Is This Hire Purchase Or PCP?

jimscullion

I have an agreement with Renault Finance which says that it is a "Hire Purchase Agreement regulated by the Consumer Credit Act 1974". However, the 49 month payment period consists of 47 monthly payments of £230.63, one payment of £230.07, followed by 1 Final Repayment of £3786.72. It was my understanding that hire purchase does not have such a large final "balloon" payment, only PCP does. Am I getting this completely wrong?

Arunmor

Looks like a second hand car?  Which you bought on finance for about £12k sticker price.  Then the final payment will be their best guess at what the car will be worth in 4 years time.  So doesn't too bad, I think you'd be hoping you might get £5-£6 if you sold it at the end of term.  (But who knows a lot can change in 4 years)

MyRealNameToo

jimscullion said:

I have an agreement with Renault Finance which says that it is a "Hire Purchase Agreement regulated by the Consumer Credit Act 1974". However, the 49 month payment period consists of 47 monthly payments of £230.63, one payment of £230.07, followed by 1 Final Repayment of £3786.72. It was my understanding that hire purchase does not have such a large final "balloon" payment, only PCP does. Am I getting this completely wrong?

PCP is a marketing name for a form of HP that has a balloon but also the ability to walk away and not pay the balloon. 

By the regulations it's still a HP despite the special features. 

fatbelly

That's a PCP.

Goudy

In law it's all Hire Purchase and covered by the Consumer Credit Act 1974.

But to the customer it's either PCP or HP.

It's just we think of HP and PCP differently, but it's all fixed monthly instalment payment purchase.
Even though the PCP payments are uneven, they are fixed within the contract like even repayment structures are.
They both have the same rights for settlement, voluntary terminals etc.

So think of them as both Hire Purchase.
Then within that HP there are different forms.
Uneven fixed monthly payments with options on the final payment (we know as PCP).
Or
Even fixed monthly payments (we know as HP as there is no other word for it).

 

MyRealNameToo

Goudy said:

It's just we think of HP and PCP differently, but it's all fixed monthly instalment payment purchase. 

Other than Mercedes managed to successfully argue at tribunal that its not a purchase after HMRC sued them for their VAT treatment on their PCP

Goudy

Yes I remember something about that.
It centred on the "option to buy" part of the contract.

It was about MB Finance wanting a PCP to be treated as a supply of services rather than supply of goods until the option to buy was taken. 
So basically workout and pay VAT monthly rather than paying VAT up front at time of purchase.

How did they get on with HMRC?

MyRealNameToo

Goudy said:

Yes I remember something about that.
It centred on the "option to buy" part of the contract.

It was about MB Finance wanting a PCP to be treated as a supply of services rather than supply of goods until the option to buy was taken. 
So basically workout and pay VAT monthly rather than paying VAT up front at time of purchase.

How did they get on with HMRC?

HMRC lost the 1st tier tribunal but appealed, whilst awaiting for the appeal to be heard the EUCJ gave a ruling on a similar case equally siding with the idea PCP can be considered a service in certain circumstances at which point HMRC withdrew its appeal and updated its rules. 

Herzlos

Is the final repayment optional? If so and you can hand the car back instead then it's what you'd call a PCP.
If it's just another repayment but for a different amount then it's HP. 

Goudy

In the case of the OP, it's a straight PCP/HP contract. 
The contract is you pay a deposit, monthly payments and the balloon. The option being to hand it back before the balloon payment is due.

What MB finance argued is one of their finance packages (Agility) was effectively a lease. The option wasn't to hand it back but to buy it at the end of the contract.

So you leased it for so many months then had an option of paying a pre determined fee (the GFV) to own it.

As one is a sale of goods, the VAT needs paying at the time of sale.

The other is a sale of services and VAT is payable on the monthly fee for that service.
This saves the finance company forking out all that VAT on each and every car in one up front chunk, so saves them lots of capital expenditure.

As mentioned, HMRC did update the rules on this and introduced a correction to the rules based on if the option to buy fee was set above or below anticipated market value.

So above anticipated market value and the VAT is worked into the monthly fees to lease as it's more likely it won't become a sale at the end of the contract.

Below anticipated market value and the VAT is due at the start of the contract and no VAT is placed on the monthly fees as an under valued car is more likely to become a sale.

It means very little to the customer, any savings from the capital expenditure saved via the monthly fee VAT payment was never going to be passed on to any customers.

MyRealNameToo

Private individuals no, people who are VAT registered, including sole traders, it will make a difference to if its for use in connection with their business or its being bought/leased as a company car etc.