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Business Income Manual

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Specific deductions: travel and subsistence: cars - restriction of hiring costs: hire periods beginning on or after 1/6 April 2009: condition B

S50A(4) Income Tax (Trading and Other Income) Act 2005, S58A(4) Corporation Tax Act 2009

This guidance applies to expenditure incurred on hiring cars where the hire period begins on or after 1 April 2009 for Corporation Tax purposes and 6 April 2009 for Income Tax purposes. See BIM47775 for the election to apply the previous rules where the hire period begins on or after 1/6 April 2009 but before 1/6 April 2010.

Rules for condition B

These rules seek to prevent businesses circumventing the restriction at BIM47740 when they provide cars to employees or connected persons. Condition B is not met by a taxpayer if:

  • the customer is an employee or officer of the taxpayer or of a person connected with the taxpayer, or
  • during all or part of the sub-hire period or any period linked to it, the customer makes any car available to an employee or officer of the taxpayer under arrangements with the taxpayer or with a person connected with the taxpayer.

Example 1

Business E (the taxpayer) hires Car 1, with carbon dioxide emissions over 160g/km, from Business L for three years. The annual lease rental is £3,000 a year.

Business E sub hires Car 1 to Business F (the customer) for three years. The annual lease rental is £3,000 a year. Business F is located overseas and not subject to the UK restriction.

Business E arranges for Business F to provide a car for an employee of business E.

Business F provides a car (not necessarily Car 1) to an employee or officer of Business E for an annual lease rental of £3,200 a year.

The employee is not subject to the rental restriction.

Although Business E subleases Car 1 for a period of more than 45 consecutive days it does not meet Condition B at BIM47750 because it entered into an arrangement with Business F (the customer) for a car to be made available to an employee of Business E (the taxpayer)

Example 2

A self employed business person P leases a car with CO2 emissions over 160g/km. P sub leases the car to their spouse, S, who is not in business. S is connected to P so P will have to apply the restriction to the hire expenses it pays for the car.

If S was self employed they might also have had to apply the restriction to the hire expenses payable to P. This could result in two lessees in a chain having to apply the restriction. However, there are rules to prevent this happening: see BIM47770