Commentary on Sections Schedule 2: Consequential amendments Paragraph 52
2028.This paragraph is based on section 35(2) and (3) and parts of section 36 of CAA 1990. It inserts new sections 578A and 578B in ICTA. These maintain restrictions on car rental costs if a car has a retail price when new in excess of £12,000.
2029.This legislation is related to that which restricts capital allowances in respect of cars costing more than £12,000 (see Chapter 8 of Part 2 of the Act). It was introduced with the capital allowances legislation by FA 1971 and consolidated with it in CAA 1990. However the legislation does not deal with capital expenditure and is better dealt with in ICTA.
2030.New section 578A(1) lists the activities that are affected by the restriction.
2031.New section 578A(2) provides that these rules do not apply to “qualifying hire cars” or to cars with a retail price of £12,000 or less.
2032.New section 578A(3) includes a formula to determine the proportion of rental costs that may be allowed for tax purposes. This proportion effectively provides relief in respect of the first £12,000 of the retail price plus half of the excess. So, for example, a car with a retail price of £24,000 will obtain relief in respect of three quarters of the rental costs.
2033.New section 578A(4) deals with rental rebates received. It provides that only a proportion should be taxed as income. This proportion is the same as the proportion that obtained relief under subsection (3).
2034.New section 578B(1) to (3) defines the terms used in new section 578A.
2035.New section 578A(4) provides that the £12,000 threshold may be changed by the Treasury.