Readers’ forum: Tax on business contract purchase arrangements

Debbie Bray and Jonathan Coletta’s excellent article ‘Porsche plans’ Taxation 9 June 2022 caused me to reflect on the tax treatment of business contract purchase (BCP) arrangements.

Depending on the specifics of the BCP arrangement in question they can either be operating or finance leases. To identify how to categorise the arrangement one would need to weigh the various considerations in FRS 102 20.4-8 (Classification of leases). In practice I suspect most advisers assume it’s a finance lease if the client is asked to pay VAT in full upfront and an operating lease if they’re charged monthly.

Let’s say the client will be asked to pay £40 000 plus interest over a four-year period. At the end of the term there is an option to purchase the car for a £20 000 balloon payment. In this unrealistic example ...