The Government announced at Budget 2008 its intention to reform the tax relief available for business expenditure on cars and to introduce new rules that would be simpler to administer and have an environmental focus.

The Technical Note, available at http://www.hm-treasury.gov.uk/d/modernising_taxrelief_technote081208.pdf, sets out the proposed legislation, including the transitional arrangements.

Currently, businesses face restrictions on the extent to which they can claim tax relief for their capital expenditure on cars costing more than £12,000. There are also related restrictions on the amount of car rental payments that businesses can offset against their profits when they lease cars costing more than £12,000.

In Budget 2008, it was announced that the existing capital allowances rules for cars costing over £12,000 would be replaced by an emissions-based approach. The related restrictions on lease rental payments would also be replaced by a flat rate disallowance, but only for cars with CO2 emissions above 160g/km.

Chapter 3 of the Technical Note sets out the key features of the new rules and requests comments on certain points of detail.

Chapter 4 of the Technical Note contains the draft legislation, accompanied by Explanatory Notes setting out the purpose of each clause.

Comments should be sent in no later than 27 February 2009. The Government will publish final legislation in Finance Bill 2009, along with a revised Impact Assessment.