CLAUSE 59: EMPLOYEES VEHICLES: WITHDRAWAL OF CAPITAL ALLOWANCES

SUMMARY

1. Clause 59 removes the right for an employee to make a claim for capital allowance relief in relation to a car or other vehicle used for qualifying business travel.

2. Under the existing rules an office holder or employee can claim capital allowances on expenditure incurred on a car or other vehicle used for qualifying business travel. From 2002/03 onwards, they will be entitled to claim statutory authorised mileage relief in respect of such travel. This clause prevents double relief being given by removing from 2002/03 the right to claim capital allowances as well.

DETAILS OF THE CLAUSE

3. Subsection 1 substitutes this clause for section 36 (restriction on qualifying expenditure in case of employment or office) of Chapter 3 of Part 2 of the Capital Allowances Act 2001 (plant and machinery: qualifying expenditure). Section 36 will now not allow expenditure by employee or office holder on a car or other vehicle to qualify for capital allowances. Other expenditure will continue to qualify if it is on plant or machinery necessarily provided for the duties of the employee or office holder.

4. Subsection 2 repeals section 80 (vehicles provided for the purpose of employment or office) of Capital Allowances Act 2001.

5. Subsection 3 applies the amendments in subsections 1 and 2 to expenditure on or after 6 April 2002.

6. Subsection 4 provides that where immediately before 6 April 2002, an employee incurred expenditure on a car or other vehicle that qualified for capital allowances and the employee is treated as owning the vehicle, the ownership is deemed to cease.

7. Subsection 5 provides that for subsection 4, “employee” includes an office-holder and “cycle” has the meaning given by section 192(1) of the Road Traffic Act 1988.

BACKGROUND NOTE

8. Capital allowances allow the costs of capital assets to be written off against a business’s taxable profits. They take the place of depreciation charged in the commercial accounts, which is not allowed for tax.

9. Many employers pay expenses to employees who use their private vehicles for business travel. These are taxable but the employee can obtain a deduction from their taxable income for the expenses of using the vehicle for business and a proportion of the depreciation (under the capital allowance provisions.). The calculations of the deductions can be difficult. As an alternative, the Revenue introduced a non-statutory system of Authorised Mileage Rates. Employers can use these rates to calculate the taxable “profit” element in the expenses they pay. Employees can use the rates to work out whether they have received a taxable profit or can claim a deduction for business use of their vehicle.

10. Clause 59 is part of a wider measure to place the use of authorised mileage rates onto a statutory basis.