B2.413 Car hire
For the latest New Development, see ND.1862.
If a trader or a company hires a car, the deduction for the hire costs is restricted if the CO2 emissions exceed a certain level1. These provisions do not apply where profits are calculated on the cash basis for small businesses (see B2.112)2.
If the trader or company buys a car rather than hires it, capital allowances may be available instead. The rate of the allowance will depend upon the CO2 emissions of the car in question. See B3.342 for further details.
It should be noted that the capital allowances available for cars which are purchased rather than hired, provide a deferral of relief (any withheld allowances being made available on the disposal of the vehicle through an increased balancing allowance or reduced balancing charge), or indeed relief in the year of acquisition for certain qualifying vehicles (such as electric cars and cars with low emissions: see B3.324A. However, the provisions applicable to hired cars give rise to a permanent restriction.
The rules restricting the deduction for hire cars are designed to fit with the Government's environmental objectives by encouraging businesses to use cars with lower CO2 emissions.
Broadly the restriction:
• is a flat rate disallowance of the deduction that would otherwise be allowed
• applies to only one lessee in a chain of leases and
• applies to all cars, but not motor cycles
Amount of restriction on deduction for car hire
The amount of the deduction is reduced by 15%3.
If the rental