FCA Consumer Duty changes for our partners

The FCA Consumer Duty sets higher and clearer standards of consumer protection across financial services. As of July 2023, new rules will be implemented that are likely to apply to customers our partners do business with, in their capacity as an FCA authorised firm. We support the principle of the duty and aim to deliver good outcomes for all our customers.

The FCA Consumer Duty

The FCA Consumer Duty requires firms to put their customers’ needs first.

• • •  A new Consumer Principle that requires firms to act to deliver good outcomes for retail customers.

• • •  Cross-cutting rules requiring firms to act in good faith, avoid causing foreseeable harm, and enable and support customers to pursue their financial objectives.

• • •  Four Outcomes rules requiring firms to ensure consumers receive communications they can understand, products and services meet their needs and offer fair value, and the support they need.

What is expected?

The FCA has issued specific rules and guidance, the overarching expectations are that firms should:

• • •  Put consumers at the heart of their business and focus on delivering good outcomes for customers.

• • •  Provide products and services designed to meet customers’ needs, that provide fair value.

• • •  Not seek to exploit customers’ behavioural biases, lack of knowledge or characteristics of vulnerability.

• • •  Consistently consider the needs of their customers, at every stage of the product/service lifecycle.

• • •  Continuously learn from their growing focus and awareness of real customer outcomes.

• • •  Ensure that the interests of their customers are central to their culture.

• • •  Monitor and review the outcomes their customers are experiencing and take action where needed.

• • •  Ensure that their board or equivalent governing body takes full responsibility for ensuring that the Duty is properly embedded.

What does it mean for BNP Paribas Leasing Solutions? 

We take the requirements of the Consumer Duty rules very seriously and have established a project team to ensure that we meet the deadlines set out for the implementation.

Under the language used by the FCA we identify ourselves as a “Manufacturer” of financial products.

As such we are currently conducting a review of all our products, their value, their target markets, distribution arrangements, monitoring and review process to ensure that they are in line with the requirements under the Duty.

Software is a vital part of every firm’s professional arsenal; the right software can increase efficiency across all business departments. Business intelligence software can help to identify new sales opportunities; HR software can automate the management of staff; and accounting software can handle payroll and help comply with legislation. In an ever-evolving tech landscape it is imperative for customers to obtain access to the software they need. Software finance is a smart cash alternative that offers a range of advantages. In this article, we’ll break down the benefits that leasing software can provide to you and your customers.

WHat is Software Finance?

Upgrading to a more sophisticated software system often means that businesses will be met with large upfront costs. Putting off such purchases can have a detrimental impact on business growth and profit margins. However, when software is obtained on finance, it enables customers to spread the cost of software acquisitions over the software license period. In simple terms, as the lessor, we pay for the initial cost of the software license. This enables the customer to use the software and repay the lessor by way of monthly or quarterly rental payments for a predefined period.

What are the Benefits Of Leasing?

Over time, software can become outdated as technology continues to advance rapidly.  Financing software enables your customers access to the latest software applications to accelerate digital transformation and maximise operational efficiencies. It offers business customers scalability, irrespective of their size through the ability to acquire additional software licences for a fixed monthly budget, allowing enterprises to stay ahead of the competition without a massive capital spend. With leasing, it’s easy to manage upgrades when your IT systems become obsolete. There’s no need for expensive maintenance costs or downtime due to breakdowns.

The Benefits of Working With LSUK

At Leasing Solutions UK we’re proud to offer a range of benefits to our partners.

As part of the banking group BNP Paribas, we are a trusted partner with a wide range of financial products and expertise in the ICT market.

ICT Sales Director, Michelle Clark, has shared what you can expect upon partnering with us:

“Our software finance offering has enabled our partners to sell more during uncertain times by helping their customers to manage budgetary constraints, reserve capital and continue to transform their businesses.”

Our aim is to empower you to needs of your customer, without compromise. Our solutions are innovative, tailor-made and dedicated to your markets and your clients.

Digital Tools:

Upon partnering with us you’ll be granted access to our digital tools that enable you to track and oversee your documents, alongside support from our responsive teams.

Lifecycle Solutions:

In 2021 approx. 1000 laptops per second went to Landfill. Electronic waste is the fastest growing waste stream, with 59.4 million tonnes of e-waste predicted to go to landfill in 2022.

We are mindful of the lifecycle of the products we lease. Our joint venture, BNP Paribas 3 Step IT, will buy customers old IT devices, and refurbish them for reuse to ultimately avoid sending them to landfill.

Research shows that 64% of customers want companies to take a stand on issues like sustainability. BNP Paribas 3 Step IT help customers do this by refurbishing old IT for reuse and only recycling when absolutely necessary. This is one of the ways we can help support customers ambitions to do something about their e-waste.

The Commercial Vehicles market is on the precipice of some the most substantial changes the industry has witnessed. Businesses are now entering into the initial stages of adapting their commercial fleets to alternative fuels, in support of zero emission goals. From the types of vehicle fleets available, to the total cost of ownership, the sector must anticipate the changes ahead to adapt to new standards that will soon become a marker of success in the industry. Sales Manager, Scott Barnett, commented:

‘Through our valued LCV partners we are already funding electric vans on both Hire Purchase and Finance Lease. Previously we have seen an increasing demand from larger fleets and we are now seeing much smaller fleets consider the electric options where the requirement fits the infrastructure. We are constantly reviewing the market and the options available so we can remain a funding option for end users looking to shift to alternate fuels.’

 

What environmental targets have been put in place?

In 2030, a ban on production of wholly petrol and diesel vehicles will be enforced [1], with hybrid vehicles due to be phased out shortly after in 2035 [2]. Beyond this, only electric, hydrogen or alternative fuelled vehicles will be permitted. As we approach this point in time, plenty is being done to support this initiative. OEM environmental targets set by the European Union seek to significantly lower emissions and there are CSR/ESG mandates being set by corporations in support of climate change efforts. The introduction of clean air zones will also play a large role in changing the industry infrastructure. Clean air zones are already present in cities such as Bath and Birmingham and are steadily being rolled out across the country.

What EV options are available on the market?

There are multiple manufacturers producing Electric LCV’s within the market today, available in a range of sizes. In order to assess the right type of vehicle for your business, it will be important to evaluate charging speed and payload. The market currently offers a choice between battery electric vehicles (BEV) or plugin hybrid electric vehicles (PHEV). There are benefits to both. BEV’s are often more affordable to run, however, PHEV’s are not reliant on charging infrastructure [3]; which currently is awaiting mass development throughout the UK. A further alternative is HEV (Hydrogen Electric Vehicles) and HFCV’s (Hydrogen Fuel Cell Vehicles), which are currently being trialled in Germany. The key advantage to these vehicles is their fast energising/charging time. The downside resides in the difficulties that are faced in storing hydrogen. The infrastructure will be a challenge to overcome, comparable with the electric charging infrastructure we have in place today.

What is the total cost of ownership?

The benefits of purchasing an EV fleet are already beginning to far outweigh that of their non environmentally friendly alternatives. Petrol and diesel fleets will now be met with high maintenance fees, cost of fuel, and congestion zone charges as time goes on. Any diesel vehicle registered prior to 2010 will also incur diesel tax moving forwards. In contrast, a 130% tax super deduction has been introduced to support the acquisition of Electric Vehicles [4]. Leasing can further support a reduction in total cost of ownership.  When the cost of any vehicle can be spread over a fixed period it enables return on investments to be clearly identified, and investments are not restricted by affordability at the time of purchase. 

How can BNP Paribas Leasing Solutions help?

It’s clear that now is the time to start implementing changes to meet outlined targets set by the government. Communicating with stakeholders, calculating the total cost of ownership and maintenance, as well installing the necessary charging infrastructure are all essential factors to consider ahead of 2030. BNP Paribas Leasing Solutions has been committed to the Commercial Vehicles sector for more than 40 years, supporting customers to make the right long-term decisions for their business by utilising the benefits of asset finance.

[1] https://www.bbc.com/news/science-environment-54981425  BBC, November 2022, Ban on new petrol and diesel cars in UK from 2030 under PM’s green plan

[2] https://www.cnet.com/roadshow/news/uk-gas-hybrid-car-engine-ban-electric-vehicle-2035/#:~:text=UK%20will%20ban%20new%20gasoline%20and%20hybrid%20cars,government%20accelerates%20its%20ban%20from%202040%20to%202035. CNET, February 2020, UK will ban new gasoline and hybrid cars by 2035

[3] https://www.buyacar.co.uk/cars/economical-cars/green-cars/1867/phev-vs-bev-should-i-get-a-plug-in-hybrid-or-electric-car  Buy A Car, February 2022, PHEV vs BEV: should I get a plug-in hybrid or electric car?

[4] https://www.bvrla.co.uk/guidance/tax-vat/130-super-deduction-for-capital-expenditure.html BVRLA, 130% Super Deduction for Capital Expenditure

BNP Paribas Leasing Solutions are not authorised to provide tax advice. Buyers should consult an accountant in order to understand the tax consequences of any investment decision. 

For all organisations with a financial year ending on 31st March the time to review capital equipment expenditure is now. 

The need for businesses to invest in new technology to increase productivity and reduce cost has never been greater. The tax system will continue to support business investment throughout 2023, but to take full advantage of tax allowances available for their current accounting or financial year, some businesses might need to act swiftly. 

In November last year, the Chancellor announced that the Annual Investment Allowance (AIA) would be set at a permanent level of £1,000,000 each year. This marked the continuation of a temporary allowance that has been in place since 2019. The AIA is the amount of money a business can spend on the purchase of most capital equipment and claim the full capital allowance in the accounting year in which the acquisition was completed. Therefore, providing stock is available and can be delivered by the end of Q1 2023, any AIA available will apply to the current financial year for businesses having a financial year ending in March 2023, this demographic will include most sole-traders and partnerships as well as a number of limited companies. 

Further for limited companies acquiring new capital equipment, the more restricted but more generous super-deduction capital allowance might be available, but be aware that there are exemptions, and the scheme runs only until the end of March. 

The key to making full use of AIA is to ensure that the allowance is allocated in the most financially advantageous way between accounting years. This means that unless a business has a financial year that coincides with the calendar year (January to December) it will often prove beneficial to allocate any annual investment allowance for 2023 between the two accounting years that fall within the calendar year, and this is where 31st March becomes a significant date. Many businesses have a financial year that ends on this date which means that they might decide to bring forward some or all of their forthcoming capital equipment expenditure, or, if they intend spending the full £1,000,000 available for 2023 and want to apply the allowance equally between their current and next financial years, they should use £250,000 of annual investment allowance between 1 January and 31st March 2023 and the remaining £750,000 between April and December. Maximising the benefit of tax allowances available can therefore provide a strong reason to bring forward expenditure on capital equipment providing delivery can be completed during January, February, or March. 

The additional good news is that businesses can acquire the equipment they need now and get the full immediate benefits of the AIA or super-deduction without the need for a large cash outlay. This is possible because equipment subject to hire purchase finance agreements qualifies for AIA or super-deduction in exactly the same way as equipment purchased outright. In other words, businesses can get the tax allowances in their current accounting year but spread the cost of purchase over a number of future years. In addition, the interest element of any hire purchase agreement can also be fully offset against tax. In conclusion some businesses might need to act fast and bring forward their capital expenditure plans for 2023. 

BNP Paribas Leasing Solutions are not authorised to provide tax advice. Buyers should consult an accountant in order to understand the tax consequences of any investment decision. 

The Commercial Vehicles market has been met with a variety of challenges throughout 2022 so far. Ongoing supply chain problems, post-pandemic blues, the Ukrainian war and a cost-of-living crisis are all factors that have continued to cause a detrimental impact. This impact has led to eight consecutive months of commercial vehicle registration decline from January to August. September, however, bucked this trend and marked the first growth in registrations for the LCV market this year.

As we look forward to 2023, SMMT Chief Executive, Mike Hawes had this to say,

The UK’s van market continues to be shackled by supply shortages amid difficult operating conditions, which will likely continue into 2023, easing over the course of the year. Demand for zero emission vans remains robust despite these challenges, but a successful net zero transition will require measures targeted at long-term operator confidence.”

Our Commercial Vehicles Sales Manager, Scott Barnett, shared his experience of the current market climate, 

I have spoken to many businesses linked to the commercial vehicle market towards the end of last year, and their main concern going into 2022 was stock. Some even expected stock to be an issue into 2024 and it looks as though they will be right. Due to product supply some fleets and small businesses have been required to run their vehicles for a longer than originally anticipated as they await confirmation of product availability. 2022 has continued to see further increases in the price of vehicles , and the cost of borrowing. This is applying greater pressure to the market and there is no doubt that these uncertainties are damaging demand in the short term.”

For the remainder of 2022 LCV registrations are expected to fall by -13.7% on the 2021 total. There is a however expected to be a rise of 53.1% in the BEV (Battery Electric Vehicle) share of the market in comparison to last year’s figures. Mike Hawes, SMMT’s chief executive commented, “In these circumstances, the continued growth in electric van uptake is admirable as the industry strives to deliver its Net Zero commitments.”

Looking ahead to 2023

2023 holds a more positive outlook. LCV registrations are expected to be around 357,000 units, rising by 16.4% on the 2022 outlook. There is also no sign of the demand for electric vehicles slowing down. LCV BEV volumes are expected to rise 68.8% on the 2022 view and take a 9.2% market share. It is likely that going forwards this will encourage a greater charging infrastructure roll out.
Scott Barnett commented,

We have seen a real shift in the market towards the greener commercial options and larger fleets continue to lead the way with commitments to reduce their carbon footprint. We have seen a number of new BEVs and the Commercial Vehicle show, hosted at NEC Birmingham, had the UKs first fully electric pick up.”

Despite the many ongoing global factors impacting the market, improvements are on the horizon for both Electric and non-electric vehicles in 2023. To combat supply chain problems in the meantime, it is crucial to place orders well ahead of the delivery date required to manage any delays.

[Source: Mike Hawes, Chief Executive SMMT, ssmt.co.uk]

[Source: https://www.smmt.co.uk/2022/08/july-lcv-market-down-despite-increasing-demand-for-electric-vehicles/ ]

Having a compelling reason to invest in new equipment at a time of real economic uncertainty might be open to doubt, however, a strong case can be made that such investment is more essential than ever. Gaining or retaining a competitive advantage and improving productivity are now the most important challenges facing every business, however, companies need to be convinced that any investment will achieve those objectives.

A strong case needs to be made to demonstrate that any buying decision will generate the required return on investment. This necessitates a ‘Total Cost of Ownership’ analysis which in turn links directly as to whether asset finance or outright purchase is the best method of acquisition.

The total cost of ownership looks beyond the cash price of a piece of equipment and sets out all the costs and rewards associated with an acquisition. Once such an analysis has been completed it is possible to determine whether new equipment or software will provide a return for the business. To make the necessary calculation four steps are normally taken:

• Investment Period – How long are we expecting to use the asset?

• Total Cost of Ownership (TCO) – What will be the cost of use over the investment period?
  

• Return from the investment (£s) – What will be achieved in projected cost savings and additional revenue from the investment?
  
• Return on the investment (%) – What will the return represent in percentage terms once the costs of the investment are subtracted?

So how does the Total Cost of Ownership link to the use of leasing or asset finance? Quite simply in both cases, the revenue and costs of any proposed investment are presented as a monthly cost for a fixed period which allows any return on investment to be clearly identified.

Further, by offering payment for equipment on a monthly basis, the focus is moved away from cash price, meaning that buying decisions will be based on the best return on investment over the period of use rather than constrained by what can be afforded at the time of purchase.

Acquisition by lease or asset finance also provides users with an immediate return on their investment on the basis that revenue from a new investment exceeds monthly or quarterly rental payments from day one, meaning there will be no period where costs will have exceeded revenue. With an outright purchase, there will inevitably be a period of time before the cost price is covered by any return on the investment, and this adds considerably to the attraction of leasing and asset finance as a method of acquisition.

There are many user benefits to be achieved by acquiring equipment using leasing or asset finance; anyone selling capital equipment needs to present the finance option in a way that encourages customers to make the right long-term decision for their business rather than be constrained by what can be afforded at the time of acquisition.

Anyone with a variable rate mortgage or bank loan will be aware that there has been a relatively sharp rise in the cost of borrowing over recent months. The cost of leasing and asset finance is also affected by the rise in interest rates that we have seen since the start of the year.

It is worth noting that the cost of a lease or asset finance agreement is calculated on the same basis as a fixed rate mortgage. In both cases the rate of interest is fixed for a number of years. This means that the price is based on anticipated interest rates for the term of the agreement, rather than the short-term interest rate set by the Bank of England. It is sometimes the case that a rise in the Bank Base Rate can be accompanied by a fall in the cost of fixed term finance agreements on the basis that ‘the markets’, which set the price for such products, assume that in the longer-term interest rates will fall. The opposite can also of course apply.

Current levels of interest rates are still relatively low in historical terms, it is just that we have become accustomed to ultra-low borrowing costs since the financial crisis of 2008/2009. The question, therefore, is whether a lease or asset finance agreement makes sense in an environment where the cost of such agreements are likely to be slightly higher than they might have been over recent years.

Below are the three benefits, I see, when you acquire capital equipment using a lease or asset finance in todays market:

Certainty

The cost of a finance agreement is still relatively low in historical terms. In uncertain times, the knowledge that the price is fixed for the duration of the agreement provides certainty and helps long term planning.

Cash reserves

If we assume that the business environment is likely to deteriorate in the immediate future, companies might well be advised to retain any cash they might hold to sustain themselves through a potential period of weakened trading rather than use it to purchase capital equipment. In these circumstances a lease or asset finance agreement offers a good solution.

Competitive edge

In a period of real uncertainty an obvious question is whether the time is right to invest a new equipment. A strong case can be made that such investments are essential. Gaining or retaining competitive advantage and improving productivity are now more important than ever. Leasing and asset finance provide the means for such investment without large cash outlay.

No one can be sure what will happen to interest rates over the coming months. However, if we assume that the cost of money is likely to increase, then a strong case can be made to bring forward capital expenditure. It’s important to ensure that the resultant finance agreements are locked into current interest rates and stock prices ahead of any potential increase in either.

The news headlines that followed the first financial announcement of the newly established Truss/Kwarteng government were dominated by the implications of reducing taxes at a time of high government borrowing and high inflation. However, there were some measures taken that might also have a specific influence on business investment.

The planned increase in the rate of corporation tax on profits over £200,000 from 19% to 25% starting in April 2023 has been shelved. Any dividends paid from those profits will potentially benefit from the removal of the top rate of income tax and a reduction in dividend tax rates. This may or may not influence what proportion of company profits are set aside for investment as opposed to payment of dividends.

The highly attractive Super-Deduction capital allowance is due to end in March 2023 and there was no announcement made to the contrary. However, Annual Investment Allowance, the other temporary capital allowance, will remain at £1,000,000 for 2023 and become permanent. This allowance was due to be reduced to £200,000 from April 2023 and, as a reminder, any assets subject to a hire purchase agreement qualify.

We await details of a plan to create up to 40 new ‘investment zones’ in England, with the potential for more in Wales, Scotland and Northern Ireland. Businesses in these zones will benefit from wide-ranging tax breaks, including 100% tax relief on investments in plant and machinery, and no National Insurance contributions will be payable on the first  £50,000 earned by new employees.

For the immediate future, the market reaction to the statement was perhaps more significant for business owners than the measures announced. A dramatic reduction in the value of the pound and an increase in the cost of government debt will almost certainly lead to Bank of England base rate rising further and faster than would otherwise have been the case. It is therefore more important than ever for business planning on taking out asset finance agreements to do so as quickly as possible and benefit from a fixed price contract set at today’s interest rates.

Disclaimer
BNP Paribas Leasing Solutions is not authorised to provide tax advice. You should consult an accountant in order to understand the tax consequences of any investment decision.