Accounting For Pcp Agreements

Companies must provide, as part of their business and accounting documents, evidence of how they arrived at the figures they used. “A number of final payments or payments due at the end of the agreement period are called option payments. These payments are often very small, so it is very unlikely that the customer will not make the payment. Under these conditions, it is clear at the beginning of the contract that the title has passed in the normal course of the event. That`s why there is a shipment of goods in advance. Therefore, a lease agreement expressly provides that the title expires at the end of the contract, while leases, z.B. with high balloon payments, may also end with the tenant`s exit from the contract. This issue is discussed further in VATSC10172: Grant Thornton`s guidelines refer to Irish VAT rules, which provide that the rental of property is carried out for a specified period of time, including the condition that the property be transferred to a date no later than the final payment. There is evidence that ownership of the vehicle is not included in most PCP agreements.

It is more usual for the customer to return the vehicle or take a replacement. As a result, obtaining a car under a PCP agreement is considered to be a service delivery as opposed to a delivery of goods and should result in the lower VAT rate. Many companies offer HP contracts, the last tranche of which is a material amount (“balloon payments”), similar to those of PCP contracts, but the final tranche is not optional under HP contracts. These agreements generally have a much lower option fee for the acquisition of the asset that must be paid immediately after the payment of the balloon (at the same time). If the option commission is significantly less than the expected market value of the asset, these deliveries are not affected by the MBFS decision, regardless of the amount at which the payment of the balloon is set. “If the possession of goods is transferred… according to agreements expressly anticipating that the property will continue to be in the future (determined or identifiable by the agreements, but in all cases at the latest when the goods are fully paid)… so, it`s… delivery of goods.” If you would like assistance with accounting and tax processing of PCP agreements, please contact us. The accounting treatment for the purchase of a car via PCP is different from a more traditional rental purchase. PCP financing is characterized by relatively low monthly rates, which leave a higher residual value at the end of the contract.

The residual value should only be paid by the customer if he sticks to the purchase option. If a promotion of VW, for example, is carried out on a Skoda Octavia, VW has already entered into a contract with the factory that built the vehicles to say 400 Octavia for the Irish market according to a particular specification and therefore they can agree and get a significant discount on the entry price for the order, this saving then allows vw Bank , pcp financing for vehicles for sale to make it very attractive to us motorists.