Question proposed, That the clause stand part of the Bill.

I am looking forward to hearing from the Minister about the statutory instrument that he brought to our attention in the previous debate. I hope that it will be subject to the affirmative procedure. I look forward to being a member of the Committee that will discuss it.

Clause 3 will correct technical anomalies in the special capital allowance rules for foster carers and shared lives carers to ensure that the rules operate as intended when individuals start or finish qualifying or being elected for foster care relief. I understand that carers can stay out of the tax regime if they earn below the individual limit for qualifying care relief. If their earnings from the provision of care exceed that limit, however, they can sometimes use the normal tax rules that apply to businesses. That might seem quite unusual, given that we are discussing carers, but such a resource can sometimes be discussed—as we see in the explanatory notes—as though it were a business arrangement. That can include claiming capital allowances for certain plant and machinery.

My obvious question to the Minister is: what sort of capital plant and machinery applies in care scenarios? Will he elaborate on that and describe the particular mechanistic and plant investments that carers might seek to make to gain such a capital allowance?

I am told that the rules seek to prevent excessive claiming of those capital allowances, or double-claiming in excess of the original costs of plant and machinery that were previously relieved. What evidence does the Minister have that there have been abuses of those capital allowance arrangements in the past? Is it to do with computer purchasing or transport or kitchen equipment? What exactly is it and what evidence is there of previous abuse?

If the Minister has gained some inspiration about the sums of money that relate to this, I should be grateful to know what figures are involved in making the changes. Are we moving from one estimate of capital allowance arrangement to a new lower one? What is the Treasury’s estimate of the financial implications of the arrangements?

Will the Minister say how many qualifying carers choose to calculate their taxable earnings as profits, as though they are in a care business? Again, I am not clear about that, because there seem to be two routes that carers can go down. How many carers, does he estimate, treat the situation in that sense and may fall under the capital allowance arrangement? If we are discussing care as “a business”, at what point would qualifying carers come under the inspection regime of—I presume—the Care Quality Commission? When does the number of placements, or people in care who are being looked after by a family, grow so large that it becomes a business that merits an inspection arrangement? I should be grateful if the Minister would answer those specific points about clause 3.

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.

I am interested to hear the Minister’s further explanation of clause 3. He said that there is not a vast cost involved in tightening up these arrangements—he used the word “negligible”. Furthermore, he said that there do not appear to be many abuses of these double-claiming arrangements. He gave a helpful illustration involving a minibus that might have had a further 25% double relief in year 3. It strikes me that there is an awful lot of HMRC and Treasury effort put into tightening up an arrangement on people who are on low incomes. I wish that the Treasury and HMRC spent as much time tightening up tax evasion and loopholes—those multi-million pound abuses that we know are still exploited by those with the best advice at the higher end of the income scale. I make that observation simply to say that there seems to be a lot of effort and attention going into a particular tax law change where there is neither a great cost nor a massive abuse.

Having said that, there is, I suppose, merit in the theoretical. If it is academically necessary to redraft the legislation, in order to have a full belt-and-braces, tightened-up arrangement for the capital allowances, I suppose that that is worth while. We would not want to leave anomalies there for the sake of doing so. I may have missed this point, but I did ask the Minister about the inspection regime for a family organisation with large numbers of adults or children in care that becomes more business-like and reaches the point where the inspectorate would make inquiries—not with the local authority, but with the family organisation directly. Will the inspectorate get involved at that level? If the organisation is more business-like, the expectation would be that there should be a second look at how that business is operating. I do not particularly object to clause 3, but I wonder whether the Minister would elaborate on my later point.

First, I will respond briefly to the point about whether there is substantial abuse. It is of course right that we should seek to tighten those matters before there is a significant cost to the taxpayer, and it is in order to ensure that the capital allowances regime works fairly and consistently that we are taking those steps now. The hon. Gentleman asked about the inspection  regime. From the HMRC perspective, any return can potentially be subject to an inquiry, and the definition of trade does not depend on the level of income. It is not, therefore, a question of the point at which one moves from being very small scale and left alone to being a business that is under a different regime as far as the tax authorities are concerned. Any return could be subject to an inquiry.

Question put and agreed to.

Clause 3 accordingly ordered to stand part of the Bill.