SE31855 - Travel expenses: general - employees using own car for work - statutory basis - hire purchase

Section 198 ICTA 1988, Section 35(2) CAA 1990, Section 35(3) CAA 1990

Important note:

From 2002/03 the rules described below have changed. There is a new statutory mileage allowance relief rate that is used to calculate tax relief that employees can get for using their own vehicles for work. Employees are no longer entitled to deduct actual costs (the exact method) or to use the non-statutory authorised mileage rates (the simple method). There is detailed guidance on the new scheme at SE31330 onwards.

2001/02 and earlier

Where a car is being purchased under a hire purchase agreement, the finance charge is not 'interest' but a revenue expense similar to an ordinary hire charge. A deduction may be given for the business proportion of the 'hire charge' provided it satisfies the tests for travelling expenditure in Section 198 ICTA 1988 (see final paragraph of SE31840).

A deduction for this expenditure may be given whether or not the employee is within a fixed profit car scheme, or using the Inland Revenue`s authorised mileage rates (see SE31860 onwards). When calculating the amount on which relief is due, remember that you only include the business proportion of the finance or hire charge element of the hire purchase payments. Do not include the repayment part of the hire purchase instalments.

The restriction in respect of cars with a retail price when new above £12,000 (Section 35(2) CAA 1990 – see SE31850) can apply to the hire charge but does not do so in most cases. This is because where there is an option to purchase on the payment of an amount equal to not more than 1 per cent of the retail price of the car when new, Section 35(3) CAA 1990 prevents Section 35(2) from operating. Section 35(3) has effect under Schedule E for 1991-92 onwards.