The Implications of VAT On Monthly PCH Payments
Tuesday, 17. March 2020
The Government will have to help businesses to recover from the effects of Coronavirus. In the US they have cut interest rates to 0% down from 1.75% which is a massive drop aimed at stimulating the economy.
However, the UK’s Bank Of England was only at 0.75% in the first place so dropping to 0.25% was never going to have the shot in the arm effect that the massive drop in the US would have on its economy.over there.
So one of the rumours flying around at the moment to stimulate the UK economy is a temporary drop in VAT.
Some are suggesting a drop from 20% to 15% with some suggesting a drop of as much as 10% to a standard rate of 10%.
This would immediately affect the quotes going out as soon as the drop is confirmed by the Chancellor but how will it affect you if you already have an agreement?
Well, years ago I was criticised for showing my monthly figures for a PCH excluding VAT. The reason for this was to make it clear that your monthly payments can be adjusted in line with the current VAT rate.
So to be clear if the VAT rate is dropped and you have an ongoing PCH agreement your monthly payments will also drop accordingly.
So if you are currently paying £200 + VAT you’ll be paying £240 per month. But if the rate drops from 20% to 10% your payments will drop to £220 per month.
However, when the rate increases you will be back to where you were. But you will enjoy a short term benefit which you wouldn’t enjoy if you had a PCP. By Graham Hill
