286A Wear and tear allowances for licences for public hire vehicles.

Summary

This section provides for a scheme of wear and tear allowances in respect of capital expenditure incurred by a person on the cost of a taxi licence acquired on or before 21 November 2000 (the date the deregulation of taxi licences was announced). The allowances are effectively backdated in that, where capital expenditure was so incurred, the expenditure is deemed for the purposes of qualification for the allowances to have been incurred on 21 November 1997 or, if later, the date on which the person commenced the trade of taxi-driving. Also, the section is deemed to have come into operation on 6 April 1997. This will enable claims for the allowances to be made in respect of tax years back to 1997–98.

The allowances involve the write-off of qualifying expenditure at the rate of 20 per cent per annum over 5 years. The allowances will be allowed against the trading income of the licence owner who drives the associated taxi. The allowances will not be available where the licence-owner rents out the licence and associated vehicle to another person, except where the licence-owner both carries on the trade of taxi-driving and also receives income from renting the licence and the associated vehicle on a part-time basis. In such a case the allowances will be allowed against both the trading and the rental income from the vehicle in question. Where more than one licensed vehicle is operated in such a manner, the allowances will be available only in respect of the cost of a licence relating to one vehicle.

However, where a person inherited a licence from a deceased spouse who carried on the trade of taxi-driving, the person is deemed to have incurred the qualifying expenditure in respect of the licence and may set the wear and tear allowances against rental income arising from the letting of the licence, even though the person is not carrying on a taxi-driving trade. Where more than one licence is so inherited, the allowances will be available only in respect of the cost of one licence.

Finally, where inheritance tax or probate tax was paid in respect of a taxi licence, then, for the purposes of qualification for wear and tear allowances, the value used for inheritance tax or probate tax may be used instead of the actual capital expenditure cost, if that value is higher.

Details

Definitions

(1) The term “licence” means a taxi licence or a wheelchair accessible taxi licence.

The term “qualifying expenditure” is defined as capital expenditure incurred on acquiring a licence on or before 21 November 2000, but for the purposes of qualification for wear and tear allowances any such expenditure is deemed to have been incurred on 21 November 1997 or, if later, the date on which the trade (of taxi-driving) commenced.

However, where a licence is inherited by an individual and inheritance tax or probate tax was paid in respect of the licence, “qualifying expenditure” is defined as an amount equal to the value used for such tax purposes, if that amount is greater than the actual capital expenditure incurred on acquiring the licence. Where this rule applies, the amount in question is treated as capital expenditure incurred on the acquisition of a licence on 21 November 1997 or, if later, on the day the individual commences the taxi-driving trade.

A “qualifying trade” is defined as a trade carried on by an individual which consists of the carriage of members of the public for reward in a vehicle in respect of which a licence has been granted, that is, in a taxi or a wheelchair accessible taxi. However, any trade or part of a trade which consists of the letting of the taxi will not be treated as a “qualifying trade”.

Title to capital allowances

(2)(a) Where an individual carrying on a qualifying trade proves to have incurred qualifying expenditure on a licence, then, for the purposes of capital allowances in respect of machinery or plant (other than for the purposes of sections 298 and 299 which deal with allowances to lessors and lessees, respectively) —

• the licence will be treated as machinery or plant,
• that machinery or plant will be treated as having been provided for the purposes of the trade, and
• for so long as the individual is entitled to the licence, that machinery or plant will be treated as belonging to the individual.

(2)(b) Where the individual in question uses the licensed taxi partly for the purposes of the qualifying trade and partly for letting to another person, the licence will for the purposes of wear and tear allowances under section 284(1) be treated as being used only for the purposes of the qualifying trade. This ensures that wear and tear allowances will also be available where the licence owner is trading as a taxi driver but also lets the licensed vehicle to another person for part-time use.

(2)(c) Where an individual who is carrying on a trade of taxi-driving has incurred qualifying expenditure in respect of more than one licence and lets more than one licensed vehicle to another person or persons, title to capital allowances under subsection (2)(a) will be confined to one licence only (the “relevant licence”).

Licence inherited on death of spouse

(3) A special rule applies to cater for the case where an individual (who otherwise would not be entitled to the capital allowances) inherits a licence on the death of either his or her spouse or civil partner who had incurred qualifying expenditure in respect of the licence and had carried on a trade of taxi-driving. In such a case if the individual lets the licensed vehicle or the licence to another person for use by that person in a taxi-driving trade, then —

• the individual will be treated as having incurred the qualifying expenditure in respect of the licence,
• the licence will be treated as machinery or plant, and
• the letting of the licensed vehicle or the licence will be deemed to be a qualifying trade carried on by the individual which commenced on the date of the first letting.

This special rule applies in respect of one licence only.

Rate of wear and tear allowance

(4) This provision governs the rate of wear and tear allowance to be made under section 284 in respect of qualifying expenditure on a licence in taxing a qualifying trade. Section 53 of the Finance Act 2001 inserted a new subsection (2)(aa) into section 284 to provide that wear and tear allowances would apply in respect of capital expenditure incurred on general machinery or plant on or after 1 January 2001 at 20 per cent per annum on a straight-line basis over 5 years. For the purposes of determining the rate of wear and tear allowance to be made under section 284 in respect of qualifying expenditure on a licence, the licence will be treated as machinery or plant to which subsection (2)(aa) of section 284 applies and that subsection will apply as if the reference therein to 1 January 2001 were a reference to 21 November 1997. In effect, therefore, wear and tear allowances at a rate of 20 per cent per annum on a straight-line basis over 5 years will be available, in taxing a qualifying trade, in respect of qualifying expenditure on a licence.

Letting of licensed vehicles – treatment of losses referable to wear and tear allowances

(5) This provision applies to an individual who lets a licensed vehicle on a part-time basis (subsection (2)(b)) or who lets a vehicle relating to a “relevant licence” (subsection (2)(c)). It provides that notwithstanding section 381, where relief is claimed under that section by such an individual for a loss in a qualifying trade, the amount of the loss which is referable to wear and tear allowances granted under this section may be set off against the rental income from the letting but not against any other income.

No interest on repayments

(6) In general, where a person’s preliminary tax payment for a tax year exceeds the tax liability for the year, the excess is repayable with interest. However, interest will not be payable on any such repayment to the extent that it results from wear and tear allowances under this section.

Operative date

(7) To facilitate the back-dating of wear and tear allowances, the section is deemed to have come into operation as on and from 6 April, 1997.

Relevant Date: Finance Act 2019