BIM47720 - Specific deductions: travel & subsistence: cars: restrictions of hiring costs: intermediate lessors

An ’intermediate lessor’ is someone who hires out an asset that they themselves are hiring from third party.

The restriction on the allowable expenditure on hiring a car applies to an ’intermediate lessor’.

Example

• 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.

This long standing HMRC interpretation has been confirmed in the Court of Appeal in the case of Britax International GmbH v CIR [2002]. Parker LJ said at paragraph 72:

“… if Parliament had intended to exclude intermediate hirings from the operation of section 35(2) there is no reason why it could not have done so expressly. Secondly, the fact that section 35(2) applies to hire-purchase agreements (subject only to an express exception for hire-purchase agreements where the option price is less than 1 per cent of the retail price) suggests to me that the word 'hiring' was not intended to be given a restricted meaning but was intended to extend to arrangements entered into for the purposes of obtaining finance. Thirdly, as the vice-chancellor pointed out (as his fourth reason, in paragraph 31 of his judgement) section 36(1)(c) expressly excepts from the operation of section 35(2) certain categories of short-term sub-hire to members of the public. This strongly suggests to me that Parliament intended section 35(2) to apply to long-term, intermediate, hirings. I also bear in mind that the concept of 'expenditure' is wide enough to include payments which may not strictly be regarded as rentals.”

The judgement refers to legislation at CAA90/S35 (2) which is now included at ICTA88/S578A.