Buying another car?

[B725]

Several times in the past when I've swapped car's the garage has said do you mind if we swap the figures as its just a paper exercise,do they benifit tax wise or other from doing it. I am going to look at another car next week and if they do benifit from it then they can give a bit back. They on paper reduced the selling car price  and upped the value of my car. 

Edited September 19, 2020 by B725

[JTaylor91]

Is this buying or pcp?

[figgy]

Wonder how they fly that one, if they don't get the price for your trade in. Their well down.

[B725]

It's buying a used car it must be for tax reasons for example x 20k car is on paper sold at 18k and the trade in at say 10k is shown as 12k.

[figgy]

Still don't get it on a used car as to how it works, they're selling both cars so upping one and dropping the other. Same same when you add the sales up.

Car a your new motor 20k car a your old motor 10 k they play with numbers. Your new car a on the paperwork 18k  your old car b 12k same same 30k total. Must be more to it.

[archi]

I think they have to pay the vat on the difference between the selling price and what they paid for it originally.

[B725]

43 minutes ago, archi said:

I think they have to pay the vat on the difference between the selling price and what they paid for it originally.

That makes sense, I will see if I can get a bit more when I change my car.

[Vince Green]

3 hours ago, archi said:

I think they have to pay the vat on the difference between the selling price and what they paid for it originally.

This^^^^^^

Edited September 19, 2020 by Vince Green

[Lloyd90]

Sounds like fraud? 🤔🤷‍♂️

[Rupert]

They pay VAT on the profit.

[WalkedUp]

It’s VAT fraud, very common.

[WalkedUp]

Also, it may reduce the company’s “profit” and so they will avoid income tax on the difference if they can get some cash out of the business. Being a garage I am sure they can, lots of people being paid in cash will pay for all discretionary (untraceable) spending in cash. Meals out, shoot days and tips. Nothing with a price tag or a object the HMRC can point at and say, “Where is the receipt for that? How did you pay for it?”

Edited October 18, 2020 by WalkedUp

[Cosmicblue]

On 18/10/2020 at 07:30, Rupert said:

They pay VAT on the profit.

Rupert is absolutely correct, when the dealers sell a used car they only pay VAT on the profit element of the deal. 

[Cosmicblue]

For those who buy cars on PCP - deposit, a few hundred a month, kind of thing, optional final payment or give the car back and start over again - there are few things you should know:

Dealer finance is easy - the business manager is right there in the showroom, they are all over you, making you feel special, helping you feel that you are getting a good deal and making a sound decision. It's sales....and making the customer feel good about the decision, signing on the line is what it's all about. The customer is emotionally vulnerable too - wanting to give the new baby/pride and joy a good start in life so a really good time to tuck them up with fancy polish applied in the cleaning bay, lets have the interior protection and the alloy wheel insurance oh yes better have GAP too - so then clawing back the margin they just gave away as 'discount'.

Am I cynical, have I been screwed over like this a few times? (the place the Devil resides in) yes! Especially with PCP deals. I have learned from the experience:

So on a PCP you put down a deposit, usually a few thousand pounds plus whatever trade-in equity you have got (if any), you then pay several hundred pounds a month for a vehicle you'll never own because at the end of the term there will be a final payment to make (which you most likely can't afford) so you give the car back and start all over again.

At the end of the term of each car you will have lost a lot of money:

All of your deposit (down payment plus equity in the PX)
All of the cost of the options
All of the cost of the 'extras' i.e. paint protection, GAP etc.
All of the VAT in the original purchase
All of the monthly payments

And you have nothing to show for it at the end - no physical asset, i.e. the car owned outright.

The raw realisation of the above sends a shiver down one's spine - because we are all car buffs (hence being here) we tend to get lost in the excitement of choosing a car, arriving at spec, test drives and visiting the dealer - the whole buying experience and yet financially it is an absolutely terrible decision. By the very fact one chooses to buy a car in this way is testament to not being able to afford it financially and one is truly stiffed in the process too.

Is there a solution?

Well - if you accept that car purchases are a poor use of money anyway the options are:

1) Buy the car on finance (to get the best possible deal) and then within 30 days pay the finance off in total with a bank loan with the objective of owning the vehicle outright over a longer term - that way you'll have an asset with a value at the end though you will still have lost a serious chunk of change at the end.

Or a little more rationally:

2) Buy used, low mileage at say 9-10 months old after the initial depreciation hit has been taken. Bought my Audi RS4 at 10 months old/6,000 miles - £25k less than it's purchase price, the previous RSQ3 was 9 months old/3,000 miles and had lost £17k. Those are serious losses for the original purchaser - I lost a mere £800 on the RS4 in 6 months when I traded. Fund the purchase the same way as (1) above.

3) Some people have some weird/shallow idea that having the latest registration plate sat on the drive is a badge of honour (might be a sign of something else?) if that bothers you then but a £250 personal plate from the DVLA instead.

4) Keep what you have and ride the storm out - least possible financial loss.

The Elephant(s) in the room
1) We are headed into a global recession with economic uncertainty ahead.
2) Many PCPs are typically 4 years in duration and the automotive world is on the tipping point of switching to EVs (lack of infrastructure worries accepted), so by late 2024 a used IC engine powered car is likely to be less attractive than now. The Covid-19 lockdown has given the planet a sniff of a low vehicle pollution environment so we could expect further pressure on our tools of pleasure....yea

With apologies for being so depressing - I have appreciated people in the past who buy hi-spec cars and vigorously tick the options list...

 

On the subject of using a PCP or cash:

1) Don't forget that when you PCP a car the monthly payment only funds the difference between the purchase price and the projected future value of the vehicle at the end of the term (with caveats over agreed mileage and condition attached). So despite being positioned as a purchase method it's really much close to a rental with an option to buy at the end. Despite the usual assurances from the dealer business manager based on past experience its unlikely that there will be equity in the vehicle at the end of the term as we move forward in our 'new' world.

2) When you apply pressure in the showroom over the deal numbers - say things like 'I have concerns over affordability' they will likely disappear and come back with a lower monthly number - either they opt for a special, lower interest rate (so the 1st was a try-on) or they will mess with the projected future value so you need to apparently borrow less money...decreasing the chance of the 4 year old car having any trade-in equity. In the back office the business manager's primary role is to protect profit margin for the dealership - it's your money.

3) The vehicle remains the property of the finance company until you make the final payment. It's the same for HP - though you'll be funding the vehicle in it's entirety on HP. Dealer provided Finance money is expensive - dealership convenience vs value-for-money.

4) Money to a financial institution is a 'product' like a tin of beans. They can decide what return they want from the 'product' with the effect that chunks of money are released with an associated interest rate. It pays to shop around and buy the 'product' at the most competitive price.. look at sites like moneysupermarket.com and of course your own bank.

5) If you clear an a dealer Finance company loan using cash then you'll get a letter saying that they have no further interest in the vehicle - the vehicle is totally yours. If you do fund a vehicle with a bank loan - not a totally daft idea as money is 'cheap' at the moment you can also over-pay and shorten the overall term - you'll have an asset at the end with a real monetary value which will make the next car purchase much less expensive.

[Brodie]

What Cosmicblue says makes a lot of sense.

Except, from my experience, one thing. I have, several times, used the dealer finance to get a better discount and then paid the finance balance off to save the interest charges. But you must make one monthly payment before paying off the balance; otherwise you can get hit for termination fees. Maybe it differs with each finance company but I have been warned of this by different manufacturer's dealer's sales staff. It is worth checking because it cost if you get it wrong.

On a slightly different point. You buy a house hoping it will go up in value; you buy a new car knowing it will go down in value. 

[Cosmicblue]

A small correction, you are exercising your legal right to cancel within 30 days, you are withdrawing from the agreement.  I think I'm correct in saying that dealer won't get any finance commission if you quit in that 30 day window.    I too have let the dealer throw in extra discount and enticements on the assumption it's PCP finance - only to withdraw within the 30 days.

If anyone has read my long message and had that terrible, deep pit in the stomach sinking feeling of being stuck in an agreement that you can't escape from....when you have made half the payments you can simply give the car back and walk away.  

[Brodie]

Cosmicblue -

Yes, you are perfectly correct that you can legally cancel within 30 days. That means the finance agreement is cancelled but the extra discount on the car was dependent on you taking out the finance so it becomes repayable on cancellation.