Specific deductions: travel and subsistence: cars - restriction of hiring costs: hire periods beginning before 1/6 April 2009
S48-S50 Income Tax (Trading and Other Income) Act 2005, S578A, S578B Income and Corporation Taxes Act 1988
This guidance applies to expenditure incurred on hiring cars where the hire period began before 1 April 2009 for Corporation Tax purposes and 6 April 2009 for Income Tax purposes. See BIM47775 for the election to apply the rules described in this guidance where the hire period begins on or after 1/6 April 2009 but before 1/6 April 2010.
The allowable expenditure for hiring a car whose retail price when new is more than £12,000 is restricted. See BIM47785 for the meaning of ‘retail price when new’. Similar restrictions also apply to amounts deductible from employment income or as a management expense of a company with investment business. For the restriction of writing down allowances for cars costing more than £12,000, see CA23500 onwards.
The restriction is on the amount of the ‘rent’ for which relief is given. The amount of the restriction is explained in BIM47785.
What types of vehicle are affected?
The rule applies to the hire of ’mechanically propelled road vehicles’, including motorcycles.
The rule does not apply to the following:
- A vehicle primarily suited for carrying goods.
- A vehicle of a type not commonly used as a private vehicle and unsuitable for such use. Guidance on what is a ’vehicle of a type not commonly used as a private vehicle and unsuitable for such use’ is at CA23510.
- A car CA23510.
- An electrically powered car. The rule does, however, apply to electrically powered motorcycles.
- A car with low carbon dioxide emissions. The rule does, however, apply to low emission motorcycles. For guidance on this point, see CA23153.
- Payments under a hire purchase agreement where ownership passes automatically at the end of the contract.
- Payments under a hire purchase agreement where there is a purchase option and the price payable under that purchase option is not more than one per cent of the retail price when new.
An ’intermediate lessor’ is someone who hires out an asset that they themselves are hiring from a third party.
The restriction on the allowable expenditure on hiring a car applies to an ’intermediate lessor’. This long standing HMRC interpretation has been confirmed in the Court of Appeal in the case of Britax International GmbH v CIR  74TC662.
- Company A is a small shipping company. Company A rents a car, with a retail price when new of £25,000, from Company B.
- Company B has a trade of hiring cars. Company B does not own the car it lets to Company A, instead Company B leases the car from Company C. Company B is an ’intermediate lessor’.
- Company A is hiring a car with a retail price when new over £12,000. Company A has to restrict the amount of the rent for which it claims relief.
- Although Company B is leasing the car to Company A, Company B is itself hiring the car from Company C. The car has a retail price when new over £12,000, so Company B also has to restrict the amount of the rent for which it claims relief.
- Although Company B cannot claim relief for the whole of the rent that it pays to Company C, the whole of the rent it receives from Company A is taken into account in computing Company B’s profits.