BIM47715 - Specific deductions: travel & subsistence: Cars - restriction of hiring costs: Leases entered into before 1/6 April 2009

ICTA88/S578A and ICTA88/S578B

The Capital Allowances legislation restricts the writing down allowances for cars costing more than £12,000, see CA23500 onwards.

ICTA88/S578A imposes a similar restriction on the allowable expenditure for hiring a car whose retail price when new is more than £12,000 - see BIM47717 for the meaning of ‘retail price when new’.

ICTA88/S578A restricts the amount deductible:

• in computing the profits chargeable under Case I or II of Schedule D; or
• as an expense of management of an investment company; or
• as a deduction from earnings chargeable as employment income.

In these cases, the amount of the ‘rent’ for which relief is given is restricted. The amount of the restriction is explained in BIM47717.

What types of vehicle are affected?

The rule applies to the hire of ’mechanically propelled road vehicles’. ICTA88/S578B (1) confirms that this includes motorcycles.

The rule does not apply to:

• A vehicle primarily suited for carrying goods (ICTA88/S578B (1) (a)).
• A vehicle of a type not commonly used as a private vehicle and unsuitable for such use (ICTA88/S578B (1) (b)). 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 ICTA88/S578B (2) (b))CA23510.
• An electrically powered car (ICTA88/S578B (2A) (a)). The definition of an electrically powered vehicle is in CAA01/S45D (9). The rule does, however, apply to electrically powered motorcycles.
• A car with low carbon dioxide emissions (ICTA88/S578B (2A) (b)). The definition of a car with low carbon dioxide emissions is in CAA01/S45D. 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 (within the meaning of ICTA88/S784 (6)) where there is a purchase option and the price payable under that purchase option is not more than one per cent (1%) of the retail price when new (ICTA88/S578B (2)(a)).

Intangible assets regime

If a company incurs car hire costs after 31 March 2002, it is possible that the expenditure may fall within the intangible assets regime, see BIM35500 onwards. The provisions of ICTA88/S578A are applied to payments failing the intangible assets regime by FA02/SCH29/PARA112 (2) (c).