Annex 1: Minor Changes in the Law Change 10: Trading income etc: car hire: hire agreements without option to purchase: sections 57 and 1251 and Schedule 1
This change extends the definition of “qualifying hire car” for the purpose of restricting the amount allowed as a deduction for the cost of hiring a car to include cars hired under a hire-purchase agreement where there is no option to purchase.
The change brings the income tax and corporation tax codes back into line. It also applies to management expenses.
Section 578A of ICTA restricts the amount which a company can deduct in respect of the cost of hiring a car or motor cycle with a retail value, when new, of more than £12,000. Section 578A of ICTA does not apply to a car or motor cycle which is a “qualifying hire car” as defined in section 578B(2) of ICTA.
Section 578B(2) of ICTA defines a “qualifying hire car” as a car which is:
The definition of “qualifying hire car” in section 578B(2) of ICTA does not extend to cars hired under a hire-purchase agreement where there is no option to purchase. In practice, HMRC do not apply the restriction in section 578A of ICTA on the amount of deduction to cars hired under such agreements. This section legislates that practice by including cars hired under a hire-purchase agreement where there is no option to purchase in the definition of hire car in subsection (2)(a) of the section. So the hirer gets a deduction for the full amount of the hiring costs.
This change applies also to the corresponding rule for expenses of insurance companies in section 76ZN of ICTA (inserted by Schedule 1 to this Act).
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.