This section is designed to clarify commonly used terms and acronyms form the leasing industry.

[a-g] [h-o] [p-z]

P

Personal contract hire (PCH)

PCH is personal finance agreement for the use of a car without the lessee obtaining the title or ownership. Like corporate contract hire, it can include maintenance. As the lessee is a private individual, VAT cannot be reclaimed on any element of the monthly rentals.

Personal contract purchase (PCP)

A personal agreement for the purchase of a car by instalments through a finance company. In practice there are usually four alternatives at the end of the contract term.

• Keep the car by paying the balloon payment
• Extend the contract
• Return the car and do not pay the balloon payment
• Part exchange the car

Pool cars for tax purposes

In order to be a pool car for taxable benefit purposes, a car must:

• Be available and actually used by more than one employee.
• Not be used by one employee to the exclusion of other employees.
• Not normally be kept overnight in the vicinity of the employee’s home.
• Not be used privately by any of the employees except when this is incidental to business use.

Purchase (or outright purchase)

This applies when the business buys its own cars outright. The residual value is not protected in any way. When the business has no further need, the vehicle is simply sold on the open market.

Q

Qualifying cars

Cars obtained by a company or individual who intends to use them exclusively for business purposes. Precluded from this category are cars that are either:

• Let on hire either for no consideration or for less consideration than would be payable in a commercial arm’s length transaction; or
• Made available for private use (otherwise than by letting on hire) including if the taxable person is an individual.

R

Residual value

The VAT inclusive amount for which the car can be sold for at the end of the contracted period.

Retail price

The Inland Revenue regards the term ‘retail price’ as being the price that an ordinary member of the public might pay. This will include VAT, even if it has been recovered by the taxpayer in question or the leasing company. Note: In April 2000, the Inland Revenue published a bulletin stating that, if the lessee knows the actual price paid by the lessor for the car when new, then this can be used as the retail price.

S

Sale & leaseback

With sale & leaseback, the lessee sells vehicles to the lessor and continues to use them under a leasing agreement, frequently contract hire.  The lessor owns the vehicles, which remain off the lessee’s balance sheet.

Smoking ban

All enclosed public places and workplaces in England have been smoke-free since July 2007, including company cars, pool cars and vehicles used for business purposes. Vehicles that are smoke-free must display the international no smoking symbol (at least 70 mm diameter). Smoking is allowed in vehicles that are for the sole business use of the driver and in convertible vehicles if the roof is down.

T

Taxable benefit

The amount chargeable for tax on an individual for a company car in a tax year.

Tax year

For an individual, the tax year ends on the 5th April. Therefore, the 2008/09 tax year runs from 6th April 2008 to 5th April 2009. For companies, the tax year normally follows the accounting year.

V

VAT on business cars and commercial vehicles

VAT is not reclaimable on the purchase of cars for business, except in certain cases such as taxi operators and contract hire companies, although some input VAT can be reclaimed for pool cars if only used for business. VAT can be reclaimed on commercial vehicles (trucks, vans etc.) If VAT is recoverable then output VAT needs to be charged on the resale of the vehicles and a tax invoice raised if the customer is VAT registered.

VAT on leased vehicles

VAT may be claimed on 50% of the finance element of a lease charge for business vehicles also provided for private use (e.g. company cars). VAT on maintenance and other services is recoverable in full. Leased commercial vehicles are not subject to input VAT restrictions.

VAT on fuel

Businesses that pay for fuel for their employees’ business and private use pay a fixed VAT charge based on the cubic capacity of the engine and fuel type. This allows businesses to reclaim VAT for both business and private fuel use. The fuel scale charge does not apply for businesses that provide fuel only for business purposes, but detailed records and receipts are required by HM Revenue & Customs in order to claim.

Vehicle excise duty (VED)

VED is also referred to as road fund licence. A six-band system (A-F) was introduced for new cars registered for the first time from March 1st 2001. A further new “G” band for higher CO2 emission cars (226 g/km and above) was added as from 23 March 2006.

W

Whole life cost

The total cost required for acquiring, operating, servicing, maintaining, repairing, equipping and disposing of a vehicle.  The main cost elements over the lifespan of the vehicle are likely to be fuel costs and depreciation.

Written down value

The original market value of a car less any capital allowances given since acquisition.