VAT Rate Rise Affects Leasing Company Rates And Profits
Sunday, 18. July 2010
I know I feel like I’m banging my head against a brick wall when I explain to customers that they should never simply look for the lowest rate when it comes to leasing a car. Of course when you buy something for cash you will maybe look for the cheapest price. The car you pay cash for at a car supermarket will be the same as a car that you pay cash for at a main dealer (unless it’s a sub spec black market car). The car will be built on the same production lines and carry the same warranties and the same terms of the Sale Of Goods Act apply to both purchases. However finance isn’t like a lump of metal it has a pile of terms and conditions that are legally binding and as many people have found over the years the low rate charged by the leasing/finance companies in order to buy business has resulted in some of the worst situations I’ve ever seen with customers close to suicide. Suicides in the UK are running at 6,000 a year expected to increase as people continue to struggle with mounting debt. The latest thing to fear is the increase in VAT. I won’t get too technical here but it relates to the VAT paid by the leasing company and immediately recovered when they bought the car new at the VAT rate of 15% or 17.5% and the rate having to be paid across to the VAT man out of the sale proceeds after you return the car. It turns out that the leasing companies will have terms in their contract that allows them to pass on the loss resulting from the VAT increase to 20% after it is imposed in January 2011. According to John Lewis, chief executive of the BVRLA ‘It is a commercial decision for each leasing company, but most of the contract hire agreements that I am aware of would entitle the leasing company to make the charge.’ Arnold Clark Vehicle Management who run a fleet of 40,000 vehicles and are not known for really cheap rates said they will be absorbing the loss estimated to be in the region of £5 million. This is also already affecting current quoted lease rates to the tune of £10 per month but if you went for the cheapest rate when you leased your car the leasing company can’t afford to absorb this additional loss so you can expect a bill along with as many other unreasonable charges they think they can get away with. What do you think about this? Are you worried about the end of lease charges? Have you received some unreasonable end of lease charges? By Graham Hill
