Finance Bill 2002: EXPLANATORY NOTE
CLAUSE 59: EXPENSE OF HIRING CARS WITH LOW CARBON DIOXIDE EMISSIONS
SUMMARY
1. This clause excludes cars with low CO2 emissions and electric cars from the rules in section 578A Income and Corporation Taxes Act 1988 (?ICTA 1988?). These would otherwise limit the amount a business can deduct for its costs of leasing such cars costing more than £12,000 when computing its profits for tax.
DETAILS OF THE CLAUSE
2. Subsection (1) amends section 578A ICTA 1988, inserting new subsections 2A and 2B. Subsection (2A) prevents section 587A applying to the hiring of an electric car, or a car with low CO2 emissions (excluding motorcycles). Subsection (2B) defines the terms used in subsection (2A). The effect of these changes is that businesses hiring or leasing qualifying cars will not have to restrict the amount they deduct for their hire or lease rental payments when computing their profits for tax, even where the retail price of the car when new exceeds £12,000.
3. Subsection (2) applies this change to section 578A to expenditure on hiring a qualifying car from 17 April 2002, provided the car is first registered on or after 17 April 2002, and the contract for hire is entered into, and period of hire begins on or before 31 March 2008.
BACKGROUND
4. Section 578A ICTA 1988 restricts the amount a business can deduct in computing its profits for tax for the costs of hiring a car whose retail price when new exceeds £12,000. The hire costs are reduced by reference to a formula based on the difference between that retail price and £12,000.
5. The changes complement clause 58 and schedule 19, which enable business purchasers of electric cars and cars with low CO2 emissions to claim 100 per cent first-year allowances. Those provisions also remove these cars from the rules in section 74 Capital Allowances Act 2001 that require expenditure on a car costing more than £12,000 to be put in a single asset pool, and which limit the annual writing-down allowance to £3,000.