Recording a new car PCP finance plan in your accounts system

You acquire a new car using PCP (Personal Contract Plan) finance. In Ireland you are not allowed to claim back VAT on car related payments.

So, all transactions include VAT

Details

The car costs €30,000 including VAT

There are 3 parts to a PCP purchase

1. Deposit €3,000
2. Monthly repayments 36 x €575.28 (€19,000 + interest €1,710)
3. Guaranteed Minimum Future Value (GMFV) €8,000

The total Interest on the PCP is €1,710

You will make 36 payments of €575.28 per month

The monthly interest is €47.50

The monthly capital amount being paid is €527.78

Summary of PCP costs per month and per lifetime of the PCP

Capital	€527.78	Per month
36 payments	€19,000*	Lifetime of PCP
Interest	€47.50	Per month
36 payments	€1,710*	Lifetime of PCP
Capital and interest	€575.28	Per month
36 payments	€20,710.08*	Lifetime of PCP

*The are rounding amounts of a few cents in each case

You need the PCP agreement from your PCP issuing company to get all the details required

It is also good practice to file the PCP paperwork in a safe place with all the other car related documents for easy access when the PCP ends and during the life of the PCP if queries arise.

What do we need to do?

Setup a supplier account for the car showroom you bought the car from

e.g. VW PCP Company, default VAT rate of 0%, non-resale, GL code 9010

Ensure there is a General Ledger account setup for Motor Vehicles (GL Code 5000)

Setup a General Ledger (Profit and Loss) PCP Interest Account (GL Code 3006)

Setup a General Ledger (Balance Sheet) account for the car PCP loan (GL Code 9010)

Journals to process the lease in the General Ledger (Nominal Ledger)

G/L Code	G/L Name	Narrative	Debit	Credit
5000	Motor Vehicles	VW Car 212 D 1234	30,000
9010	PCP 01 VW PCP	VW Car 212 D 1234		30,000

Supplier transactions

Supplier Invoice entered into the supplier’s account

Value of Invoice €575.28

Supplier payment entered into the supplier’s account

Value of Payment €575.28

PCP Interest Journals

G/L Code	G/L Name	Narrative	Debit	Credit
3006	PCP Interest on Motor Vehicles	VW Car 212 D 1234 Interest	47.50
9010	PCP 01 VW Leasing	VW Car 212 D 1234 Interest		47.50

GL Code 9010 contents

Date	Tran Type	Narrative	Debit	Credit	Balance
15 Jul 2021	JL	VW Car 212 D 1234		30,000.00	30,000.00
15 Jul 2021	BP	Deposit paid on car	3,000.00		27,000.00
15 Jul 2021	PI	VW PCP Company	575.28		26,424.72
31 Jul 2021	JL	VW Car 212 D 1234 Interest		47.50	26,472.22

Final option at the end of the contract

1. Pay the GMFV of €8,000 and keep the car
2. Enter a new PCP
3. Return the car and owe no more

GL Code 9010 contents extract for Last payment and GMFV payment

Date	Tran Type	Narrative	Debit	Credit	Balance
15 Jul 2021	JL	VW Car 212 D 1234		30,000.00	30,000.00
15 Jul 2021	BP	Deposit paid on car	3,000.00		27,000.00
15 Jul 2021	PI	VW PCP Company	575.28		26,424.72
31 Jul 2021	JL	VW Car 212 D 1234 Interest		47.50	26,472.22
.					.
.					.
.					.
		Balance before last payment			8,527.78
15 Jun 2024	PI	VW PCP Company	575.28		7,952.50
15 Jun 2024	JL	VW Car 212 D 1234 Interest		47.50	8,000.00
16 Jun 2024	BP	GMFV Payment to VW PCP co.	8,000.00		0.00

On 15^th June 2024 after the 36 payments are made, there is a balance of €8,000 left on the PCP. If you pay the €8,000 on the 16^th June, the car now belongs to the business.

If the €8,000 is not paid and the car returned, journals to the Car Motor Vehicles general ledger account would need to be made to remove the car from the balance sheet.

The main principles in this article are

1. Process the PCP through the supplier’s ledger so that the transactions can appear on your VAT reports
2. By setting up a suppliers account, you can easily track payments to the PCP supplier to help manage your cashflow. If you posted the PCP payment directly to your general ledger (nominal ledger) you won’t see the payment in your supplier payment run
3. By setting up a separate GL account for each PCP, you can easily see the liability on each PCP separately. If the PCP ends or finishes early, you can manage that PCP on its own and bring its balance to zero to show that it is finished.

The method I have written about here I have found to be the easiest way for Bookkeepers to manage car PCP.

How interest is apportioned each month can vary depending on your businesses policies.

Some Bookkeepers do not use the Suppliers ledger and post the payment directly to the General Ledger. I prefer not to use this method because with PCP on vans or other assets there is vat that can be reclaimed which can be easily claimed through the supplier’s ledger and purchase invoices.

There is not just one way to deal with car PCP, but whatever method you use, do it the same way for all of your PCP.