Clause 3

Part of Finance (No. 2) Bill – in a Public Bill Committee at 12:00 pm on 19 October 2010.

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Photo of David Gauke David Gauke The Exchequer Secretary 12:00, 19 October 2010

Clause 3 amends the capital allowances rule that applies to individuals who are entitled to qualifying care relief. As I explained in the context of clause 1, qualifying care relief provides a simple set of rules for calculating profits for tax purposes, which includes special capital allowances. I ought to say that the hon. Gentleman raises a fair point about what constitutes plant and machinery in such contexts. The glib answer is: anything that qualifies within the capital allowances rules—cars, vans, computers and furniture could qualify under such circumstances. Carers are permitted to claim capital allowances for their care businesses only in periods when they calculate their profits using normal trade rules, rather than the qualifying care relief rules. It follows that carers may be able to claim capital allowances in one year, but not in the next.

Broadly, the special capital allowances rules simplify the calculations required when a carer changes from one profit calculation method to another. The changes under the clause do not reflect a change of policy, but will ensure that the special rules for carers operate consistently and equitably.

It has come to the attention of HMRC that the special rules do not always work fairly or as intended. This legislation has been brought in, not so much as a consequence of observing and identifying abuse of it, but because the law as it stands is flawed and could result in a double relief that is not the intention of the policy. The legislation will prevent double claims and that is the right thing to do.

The hon. Gentleman has asked a fair question on whether this is costing a huge amount of money. The answer is that it is not; the cost is negligible. None the less, it would not be fair to allow the regime to operate in a way we did not intend. The hon. Gentleman has asked how many people will be affected. Some 5,000 carers complete a return and have taxable profits greater than nil. I hope that that is useful background to him.

It might be helpful if I give the Committee an example of how a double claim could operate, because it is a somewhat complicated matter. Currently, an individual may be able to claim allowances in excess of the original cost of an asset. For example, an individual may claim the full cost of a £12,000 minibus in year 1, under normal annual investment allowances rules. In year 2, the carer may use foster carers rules, which are outside the scope of capital allowances. In year 3, they may return to the normal rules, which allow for a capital allowances claim to be made for the market value of the minibus. The individual would have already claimed the  whole value of the capital item in year 1, but in year 3 they could claim a further 25% of the market value. Double-claiming is unfair, both on those carers whose circumstances do not permit it and on other taxpayers. To address that, and to ensure that beneficial rules for carers operate consistently in future, no further allowances will be given in respect of qualifying capital expenditure which has already been relieved. I stress, however, that carers will still get relief for qualifying capital expenditure that they incur. The change applies only to double-claiming.

The broad operation of the special capital allowances rules is unaffected by these changes. In particular, it is a feature of the rules that a carer who has claimed capital allowances in one year is not subject to a balancing adjustment on receiving qualifying care relief in the following year. The changes will take effect for accounting periods that end on or after Royal Assent. I hope that the Committee will see fit to include clause 3 as part of the Bill.