Cars: The Real Purchase Price

• Cars: The Scrappage Deal

Economical Driving

Searching the internet for New Car Sales Tax brings up almost nothing but the so-called road fund license. Almost. Some companies deal in selling new and used cars to HM Forces based in the UK or overseas free of tax. By implication, to be free of UK tax suggests tax is imposed. It used to be 2.5% of the cost of the vehicle. On top of this the VAT is imposed. Either way: VAT before or after car sales tax, this amounts to the same total, but still a tax on a tax. Information appears to be suppressed regarding car sales tax since no information is available. Unless a new car is purchased and then this becomes known, but only to the prospective purchaser. It tends to restrict and contain the flow of information.

When a car is subsequently sold or traded, the tax that had been paid is generally not recoverable and this explains why the worth of a vehicle the moment after a transaction is concluded involves the immediate and highest 'depreciation' cost for the unused vehicle in its overall expected history: it may never have even touched a surface other than the show room floor. The dealer's profit must also (additionally) be taken into account (taxable). The on the road price is inclusive of all the additional costs so the purchaser has to be aware of ALL the added costs. Used cars attract VAT for another tax levy giving more tax finance to government. Again for doing nothing. The VAT will be included in the sale price, but not explicitly declared. Every time a car is traded, more VAT is payable. Again.

A new car with a basic value of £20,000 will have an additional 17.5% (£3500) then another 2.5% (£587.5) on top of this (or the other way around). The additional payments become £4087.5 and the total to be paid would then be £24,087.5. This is the for sale price. If a loan (£24,000 over 5 years for an 'excellent' credit profile) is used to finance a new vehicle, the interest payable will also additionally raise the overall purchase cost to the buyer: almost £500 per month reaching a total of nearly £30,000. So, for a £20,000 vehicle the cost escalates to eventually £30,000. If the car is sold or traded before term, the trade-in price will be considerably less than the original £24,000 (after taxes). At the most it could only be £20,000. But that amount is the original 'value'. Take off another £5000 and this goes downwards to £15,000 of the potential £30,000. Buy another new car (probably the best trade-in price) and start all over. But up to £15,000 poorer. The financed purchase price includes the cost of the imposed tax. Road fund license and the cost of delivery, number plates and the first-time registration fee (the administrative charge for entering the vehicle onto the DVLA system: £55) also add to the cost of a new car.

The £20,000 escalates to the much greater

Real Purchase Price

of £30,000 with none of it recoverable

This could explain why the estimated (annual) running cost of car ownership is possibly unrealistic. The published information on these costs never seems to include the early year(s) that must include the original car-sale's tax and dealers' commission. These costs cannot recur in subsequent resale of a second-hand vehicle. The real average cost could be much lower, since it does not need to include this massive 'depreciation' cost. Of a new car.

Loans (currently around 8.5% and upwards) are offered on new cars without a deposit being necessary. This will increase the amount NOT paid up front, maximising the borrowings and the associated interest payable. Any arrangement fee (commission) to the vendor is added on at the expense of the buyer.

• Businesses can offset these losses. A private individual cannot and bears the entire loss.

Buying a new car or house is buying totally untested. If problems arise, straightforward redress doesn't always run smoothly. Any other purchase has the Sales of Goods Act (Fact Sheet) covering the purchase. The perceived prestige attached to such items as cars and houses (for many the most expensive) seems to render the potential problems and enormous additional costs immaterial. Perceptions can distort judgment.