Annex 1: Minor changes in the law made by the Act: Change 11: Car hire: hire agreements without option to purchase: section 49
This change extends the definition of “qualifying hire car” for the purpose of the restriction on 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.
Section 578A of ICTA restricts the amount which a person carrying on a trade can deduct in respect of the cost of hiring a car with a retail value, when new, of more than £12,000. Section 578A of ICTA does not apply to a car 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:
“(a)… hired under a hire-purchase agreement … under which there is an option to purchase exercisable on the payment of a sum equal to not more than 1 per cent. of the retail price of the car when new, or(b)… a qualifying hire car for the purposes of Part 2 of the Capital Allowances Act (under section 82)…”
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, the Inland Revenue does not apply the restriction in section 578A of ICTA 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).
This change is in taxpayers' favour in principle. But it is expected to have no practical effect as it is in line with current practice.