Introduction Details of the Schedule Part 2 - Restrictions on Deductions for Hire Expenses
40.The following paragraphs make a number of amendments to the Income Tax (Trading and Other Income) Act 2005 (ITTOIA), Corporation Taxes Act 2009 (CTA) and Income and Corporation Taxes Act 1988 (ICTA).
41.Paragraph 35 amends section 31(1)(b) to reflect the fact that motor cycles are no longer to be treated as cars.
42.Paragraph 36 makes amendments to section 48 of ITTOIA which restricts the deductions from profits that may be made in respect of the costs of hiring certain cars.
43.Paragraph 36(2) deletes “or motor cycle” where it first occurs in section 48(1) of ITTOIA, so that motor cycle hire expenses are no longer restricted. It replaces sub-paragraphs (2)(a) and (2)(b) with new sub-paragraphs (2)(a), (b), (c) and (d) which describe the different types of cars to which the restriction does not apply under the new rules.
44.Sub-paragraphs (3) and (4) amend sections 48(2) and (4) of ITTOIA by deleting the existing formula used to calculate the reduction that is applied to the deduction for rental costs of leased cars that cost more than £12,000 when new, and replacing it with a flat rate 15 per cent reduction, that will apply in respect of cars that emit more than 160 grams of CO2 per kilometre driven.
45.Sub–paragraph (6) deletes section 48(5) of ITTOIA (which gives the Treasury a power to amend by Order the calculation at section 48(3) of ITTOIA); this is no longer required as the old calculation has been replaced with a flat rate reduction.
46.Paragraph 37 makes various amendments to section 49 of ITTOIA, which defines the terms used in section 48, and inserts an additional definition.
47.Sub-paragraph (2)(c) inserts a new sub-paragraph 49(1)(za) before section 49(1)(a) of ITTOIA. This provides that a motor cycle, as defined by section 185(1) of the Road Traffic Act 1988, is not a car for the purposes of section 48 of ITTOIA. The effect of this is that expenses incurred on hiring a motor cycle do not fall within section 48.
48.Sub-paragraph (5) amends section 49(6) of ITTOIA which defines the word “new”, by deleting the words “and section 48”. This is because section 48, as amended, no longer uses the word “new”.
49.Paragraph 38 deletes section 50 (hiring cars with low carbon dioxide emissions) of ITTOIA. That section provides that cars with low CO2 emissions are not subject to the lease rental restriction, but it is now incorporated into section 48(1) of ITTOIA.
50.Paragraph 39 inserts new section 50A into ITTOIA and new section 50B ITTOIA.
51.New section 50A provides that there is no restriction of allowable car hire expenses under section 48 of ITTOIA if the taxpayer meets one of two conditions, A or B
52.New section 50A(2) explains that condition A is met when the car is made available to the taxpayer for a period of 45 consecutive days or less. Hire periods of the same car may be aggregated for the purposes of determining the number of consecutive days.
53.New section 50A(3) explains that condition B is met when the taxpayer makes the car available to another person for more than 45 consecutive days. Hire periods of the same car may be aggregated for the purposes of determining the number of consecutive days.
54.New section 50A(4) provides that condition B is not met when the car is being provided to an employee of the taxpayer or of a person connected with the taxpayer.
55.New section 50A(5) is an anti-avoidance provision.
56.New section 50A(6) provides that where condition B is met for only part of a chargeable period, the taxpayer, when bringing the expenses to account, must apportion them between the parts of that period where the conditions are and are not met according to the respective lengths of those parts of the period.
57.New section 50A(7) provides that periods of consecutive days are amalgamated if the intervening period between them is not more than 14 days.
58.New section 50B provides that where two or more connected persons in a chain of leases would otherwise be required to apply the restriction to expenditure incurred on the hiring of the same car for the same period the restriction will apply to the superior lease in the chain provided it is on arm’s length terms.
59.New section 50B(1) provides that section 50B applies to connected persons who incur expenses on the hiring of the same car for the same period who but for section 50B (or section 58B of CTA 2009) would have to apply a reduction to the expenses of car hire.
60.New section 50B(2) provides that this section does not apply if none of the persons in subsection (1) hire the car on commercial terms.
61.New section 50B(3) provides that where, but for this section, the reduction would apply to more than one connected person in respect of expenses incurred on the hiring of the same car for the same period, then the reduction will only apply once, and sets out how the reduction is to be applied.
62.New section 50B(4) provides that the reduction applies to all expenses incurred on the hiring of the same car by the same person; and “commercial arrangements” are such as would reasonably have been expected if the parties to the arrangements had been dealing at arm’s length.