No one could have seen this coming when the Yaris first appeared on our streets in 1999. It’s one thing to build a hot hatch but this car, this is just a tad more special than a simple engine and suspension upgrade. This, dear reader, is the Gazoo Racing Yaris, a homologation special.

You might recall cars like the Lancer Evo and Impreza WRX that were just such machines. They were essentially road-going versions of the monstrous motors that Mitsubishi and Subaru were racing in the World Rally Championships back in the Nineties.

Manufacturers were only allowed to race cars that had been sold in considerable numbers (5,000 if memory serves me right) to Joe Public. The numbers added up back then when the WRC was at the height of its popularity but, as viewing figures waned and the homologation regulations were tightened (that 5,000 sales now runs into tens of thousands), manufacturers shied away from producing special models and what you see now on the rally circuits are much closer to off-the-shelf family hatchbacks.

Except now we have the GR Yaris.

It might share the Yaris name but, in reality, it has little else in common with the popular hatch.

For a start it has a carbon-fibre roof. It’s also only available as a three-door. Then there’s the chassis: The front is all Yaris but the rear is an amalgam of Corolla and CH-R. Finally, beneath the bonnet is the world’s most powerful three-cylinder engine, developing 257bhp and 266lbft of torque. It sends that power to all four wheels through a slick six-speed manual gearbox creating a car capable of accelerating to 62mph in 5.5 seconds and hitting a top speed of 143mph. That puts this Fiesta-sized car firmly in the realms of larger and more powerful hot hatches such as the Renault Megane RS and Honda Civic Type R.

It may have rally genes but the GR Yaris is unlikely to spend a significant proportion of its time on gravel so how does it fare on the black stuff? Let’s find out.

The interior takes its design cues from the standard Yaris which means it is what some might describe as understated. Others might refer to it as underwhelming. It’s put together well enough but it’s not particularly exciting to look at. There’s plenty of GR badging – on the leather-wrapped steering wheel, the engine starter button, the floors and a little plaque on the centre console – so even before you set off there are reminders that this car is a bit special.

The sports seats are supportive and snug, holding you firmly in place, and the steering wheel that has lots of adjustment both fore and aft and up and down. The seating position feels relatively high but the wheel and pedals are perfectly aligned so its easy to get settled. The leather-bound gear lever sits five centimetres higher to ensure it falls readily to hand.

The high seating position offers a great view out of the front and sides but the heavily tapered roofline means that the rear windows are tiny, making it difficult to see out of the back. That is mitigated somewhat by the fact that rear-view cameras are standard on all GRs.

The infotainment system is accessed via an eight-inch touchscreen mounted on top of the dashboard. The graphics look a bit dated and the menus aren’t particularly responsive to inputs but it is flanked by physical shortcut buttons that help make using it easier. You also get Android Auto and Apple CarPlay smartphone mirroring as standard which is particularly useful because you have to specify the Convenience pack to get built-in sat-nav and you can’t have that if you want the Circuit Pack.

There should be few complaints about the amount of space the GR has on offer in the front. Headroom and legroom is generous enough that passengers of all shapes and sizes should be able to get comfortable whichever side of the car they’re on.

It’s a very different story in the back, however, because of that tapered roofline – intended to improve aerodynamics – the rear seats are really on suitable for children or very short adults. There’s also the not-to-small issue of access the rear seats. The GR is only available as a three-door hatchback and it really is a considerable effort to squeeze through the tiny gap between the front seats and the door frame.

Only the passenger seat tilts and slides forward – albeit easily by pulling a single lever – but it doesn’t return to its original position when you slide it back.

The boot is tiny. There’s barely room for a conservative weekly shop. One saving grace is that you get a perfectly flat floor when you drop the 60/40 split-folding rear seats.

Ultimately, though, this is car that wants to be judged on its performance and handling so let’s take a closer look.

You start the three-cylinder petrol with the press of a button. It fires up with little drama and no hint of the things to come. When the engine is cold – and there are very strict instructions displayed on the instrument binnacle telling the driver not to stress the engine at that time – and you’re pootling around the GR feels anything like a bespoke rally car. Apart from the noticeably firm ride that is.

That all changes quickly once the engine has warmed up. When you have access to all the GR’s power and torque it is impossible not to be blown away by both the poise and potency of the little hatchback.

Peak power is available from 3,000rpm but it will pull enthusiastically from much lower down the rev range. It is quick, of that there can be no doubt. All-wheel-drive certainly helps with traction from a standing start and that goes some way to explain the freakishly quick 0-62 times but that is really only a small part of the story.

That’s because where the GR really excels is in the corners. It is here where that clever four-wheel-drive system proves its worth. It allows you to choose how the power is split between the front and rear axles. Normal mode divides power 60 front and 40 rear. Sport switches that round to 30:70 while Track favours an even split 50:50.

The thinking behind these ratios is that Normal provides a predictable driving experience, Sport simulates the thrills of driving a full-on rally car while Track offers up the best balance for posting quick lap times.

The GR is such a beautifully poised machine that you can fling it into corners with real conviction because, as soon as you get on the power, you’ll feel the tyres bite down hard on the road and slingshot you out of the bend. It is incredibly intoxicating and addictive and encourages you to explore the limits of the car with a confidence that is missing from your more run-of-the-mill hot hatches.

For even greater thrills you can tick the Circuit Pack option box. It adds stiffer springs, dampers and anti-roll bars as well as lightweight forged 18in alloy wheels, Michelin Pilot Sport 4S tyres and Torsen limited-slip differentials front and rear.

Despite the firm set-up – and make no mistake, it is very firm – the GR manages to retain its composure over uneven roads. It absorbs lumps and bumps with an air of indifference, allowing you to travel at speed without worrying about what lies ahead. It’s true that the steering doesn’t convey a massive amount of information to your fingertips it is reassuringly consistent and well weighted.

Does the GR Yaris represent good value? Once you start ticking the options boxes – including the Circuit Pack – the price is on a par with larger and more powerful hot hatches such as the Ford Focus ST and Honda Civic Type R, among others, but it’s important to note that it’s practicality, not performance, where it’s bigger rivals have the edge.

The fact is that the GR Yaris is a truly special machine. Not only does it possess the performance to leave far more expensive performance cars in its wheel tracks but it feels perfectly at home on the UK’s roads. Startling traction from its all-wheel-drive, compact dimensions and breathtaking high-speed composure allow you to use most of its performance most of the time, something that can’t be said for larger rivals.

You have to be prepared to take a hit in the practicality department but you’ll be rewarded with one of the most appealing, fun and technically impressive hot hatches of recent memory.

Toyota GR Yaris Circuit Pack

Price: £33,520

Engine: 1.6-litre 3-cylinder turbocharged petrol

Transmission: 6-speed manual

Max power: 257bhp @ 6,500rpm

Max torque: 266lbft @ 3,000 – 4,600rpm

Max speed: 143mph (electronically limited)

0-62mph: 5.5sec

Fuel consumption (mpg): 34.32 (combined)

Emissions (CO2): 186g/km

For more information click here.