What Is Personal Contract Purchase?
Personal Contract Purchase is similar to Personal Contract Hire and is suitable for private motorists who want to benefit from corporate discounts as well as those who receive a car allowance from their employee to source their own vehicle.
With Personal Contract Purchase the leasor pays a fixed monthly rental for the span of the lease period and has an optional guaranteed future value (balloon payment) agreed at the outset should they wish to purchase at the end of the lease period.
Some companies are now looking at Employee Car Ownership (ECO) schemes as a viable alternative to regular funding methods. These schemes provide a mechanism for the driver to take personal ownership of their vehicle yet benefit from group buying power and tax efficiencies.
How Does Personal Contract Purchase Work?
The car is financed through a Credit Sale Agreement between the driver and leasing company. The employer pays the driver a monthly allowance which relates to the employee level and their choice of car. Taking this allowance together with the personal tax savings, as well as utilising Inland Revenue approved business mileage allowances, provides the driver with a net monthly budget.
The driver has greater choice as they can trade up or down from their current company car level and pay more or less per month as appropriate. The employer can benefit from a reduction in the gross cost of providing drivers with a vehicle. However this is strongly influenced by the make up of the fleet and in particular the number of business miles conducted by a driver. Generally speaking, drivers need to be in the 10,000+ business miles bracket for this to be an effective choice.
How Is Personal Contract Purchase Accounted For?
As the foundation for ECO schemes is a direct contract between the leasing company and the driver, there are no corporate accounting regulations to adhere to.
If an employee receives any form of cash allowance, this is treated as salary from a tax and national insurance perspective. Mileage allowances can either be paid up to the Inland Revenue limit or drivers can make a claim through their regular tax return.
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quotation and application form.
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