Annex 1: Minor Changes in the Law Change 105: Qualifying hire car or motor cycle: section 49(2)(b) of ITTOIA: Schedule 1
This change concerns the definition of “qualifying hire car or motor cycle” for the purposes of section 48 of ITTOIA in section 49(2)(b) of ITTOIA. It corrects a minor error in ITTOIA.
It brings the income and corporation tax codes back into line.
Section 48 of ITTOIA restricts the amount which can be deducted in calculating the profits of a trade for income tax purposes in respect of the cost of the hire of a car or motor cycle with a retail price (when new) of more than £12,000 other than “a qualifying hire car or motor cycle”.
Section 49 of ITTOIA defines various terms used in section 48 of ITTOIA.
Section 49(2)(b) of ITTOIA defines “a qualifying hire car or motor cycle” as a car or motor cycle which:
The income tax rule in section 48 of ITTOIA was formerly in section 578A of ICTA. The definition of “qualifying hire car” in section 49(2)(b) of ITTOIA was formerly in section 578B(2)(a) of ICTA.
Section 578B(2)(a) of ICTA, as it applied for income tax, referred to “an option to purchase exercisable on the payment of a sum equal to not more than 1% of the retail price of the car when new”. But because section 578B(1) of ICTA provided that “references to a car … include a motor cycle”, the option to purchase in the case of a motor cycle had to be exercisable for a sum equal to 1% of the retail price of the motor cycle.
Instead of defining “car” so as to include motor cycle, sections 48 and 49 of ITTOIA refer to “a car or motor cycle” where appropriate. But the reference to the retail price of the motor cycle when new was omitted in error from the definition of “qualifying hire car” in section 49(2) of ITTOIA.
This change corrects that error. It removes any doubt as to the amount for which an option to purchase must be exercisable for a motor cycle to qualify for exemption from the restriction in section 48 of ITTOIA.
This change is in taxpayers’ favour in principle. But it is expected to have no practical effect as it is in line with generally accepted practice.