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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 (see B2.111 and 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