Finance (No. 2) Bill (First sitting)

Debate between James Murray and Kirsty Blackman

Committee stage
Tuesday 16th May 2023 Public Bill Committees

[James Murray]

As we have heard, the clause introduces an income tax exemption for payments made by way of training allowances under the Jobs Growth Wales Plus scheme, which the Welsh Government introduced on 1 April 2022 to replace the traineeships and Jobs Growth Wales programmes in Wales. This is a training and employment programme aimed at 16 to 18-year-olds who are not in education, employment or training, and is designed to help them overcome any barriers that they may face in further training or employment.

As I understand it, the scheme has three strands: engagement, advancement and employment. Under the engagement strand, participants receive a training allowance of up to £30 a week; under the advancement strand, they receive £55 a week, and under the employment strand, individuals will be paid at national minimum wage for the age group. We understand that the training allowances paid under the scheme will be exempt from income tax. That was announced by the Financial Secretary to the Treasury in a written ministerial statement on 11 October last year. The objective of the measure is to clarify the tax treatment payments made by way of training allowances under the Jobs Growth Wales Plus scheme, and it will have retrospective effect from 1 April last year. We will not oppose the measure.

[Kirsty Blackman]

Will the Minister clarify how the payment has been treated in the interim period? I understand that back in October the Government announced their intention to treat it as exempt from income tax, but what has happened to the payments made since 1 April last year? Have the individuals been liable for income tax during that period? Will repayments or tax adjustments be required for those individuals because of the retrospective nature of the measure? Will the Government provide some clarity on how they intend to tackle those things to ensure that everybody has certainty about their tax treatment—that the individual who pays income tax has certainty about their tax treatment and that devolved Governments, when they are putting in place any of the allowances, are certain about the relevant income tax treatment in advance? We do not want uncertainty around something that is supposed to be positive for individuals.

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[James Murray]

As the Minister says, the clause increases the annual amount of care income that a recipient of qualifying care relief will receive that is not subject to income tax. Furthermore, the clause provides for the annual amount to increase in subsequent tax years in line with CPI. We know that qualifying care relief allows carers who look after children or adults, including foster carers, shared lives carers and kinship carers, to receive certain payments tax free, up to an annual limit. We know that the annual limit comprises a fixed amount for each household, plus a weekly amount for each child or adult being cared for.

Qualifying care relief is a tax simplification providing specific tax relief for care income as a replacement for apportioning and calculating full deductions for expenses. The relief allows carers to keep simpler records for their care activities and to use a simpler method of filling in the self-employed pages of their tax returns, as the Minister mentioned. We recognise that the clause increases the fixed and weekly amounts making up the annual limit to bring more carers out of income tax and simplify their tax reporting responsibilities. It also introduces CPI indexation.

We welcome the fact that the clause could provide a greater financial incentive for carers to join or stay in the care industry, potentially improving the recruitment and retention of carers in the future, so we will not oppose it.

[Kirsty Blackman]

First, given the inflation that we are facing, it is incredibly important that people who are caring, and taking on caring responsibilities, can afford to do so and are not forced to stop because of an impact on their income. This is a positive step. A not insignificant number of those who are cared for face a specific issue, such access to special diets, for which inflation has increased much more than even for food inflation. Individuals caring for anybody who is on a special diet will have seen a differentially large impact on their household spend specifically as a result of having to cater for those special diets. The changes being made therefore could not have come at a better time.

It is also positive to hear recognition for kinship carers, who are so often missed out in conversations about caring, even if people are taking on a formal role as kinship carers. We could not do without the significant amount of work that kinship carers do, so I am pleased, having previously had to argue in my council role for similar benefits for kinship carers as those that foster carers were receiving, that the Government have as a matter of course included kinship carers in the qualifying care relief, and ensured that the changes being made extend to them.

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[James Murray]

As we have heard from the Minister, clause 29 introduces schedule 2, which makes provisions relating to the taxation of estates in administration and trusts. We understand that the clause implements the Government’s response to the “Income tax: Low income trusts and estates” consultation conducted by HMRC between April and July 2022. The response was published at the time of the spring Budget. The clause seeks to legislate for an existing concession on the administration of tax for trusts and estates.

We will not oppose this measure, but I ask the Minister to address concerns raised by the Chartered Institute of Taxation about the impact of this clause on trusts. It believes that the legislation takes a practical approach on estates, which will benefit both the personal representatives of the deceased and their beneficiaries. However, it believes there is less simplification in respect of trusts with low incomes, and that for some people, the administrative burden will actually increase. The institute has concerns about the way that trust income is taxed in two stages. First, the trustees report the trust’s income and pay tax on it. Secondly, when income is distributed to beneficiaries, they must report the income and pay any tax that remains due after credit has been given for the tax that was taken at the first stage.

The Chartered Institute of Taxation draws attention to the fact that although a £500 threshold, like that for estates income, is applied to the income accruing to the trustees of a settlement, that does not exempt the income in the hands of the beneficiaries. Where trustees have no liability to report or pay, basic rate taxpayers will have to pay the basic rate tax due on their income from the trust. Currently, they may not be filing a tax return at all, as their basic rate liability will have been met by the tax deducted by the trustees; this measure may mean that they now have to file a tax return. I would welcome the Minister’s thoughts on that point, and would be grateful for a response to CIOT’s concern that this measure, while described as a simplification, could impact on often vulnerable beneficiaries receiving modest amounts of income, who will now have greater compliance burdens.

[Kirsty Blackman]

I have a quick question on Government amendment 4. Will it change the application of schedule 2 and proposed new schedule 1C to the Taxation of Chargeable Gains Act 1992, or does it simply clarify what is intended anyway under those schedules? The amendment specifically mentions the property not being held for pensions purposes. I am trying to understand whether that was the original intention, or whether the amendment changes the intent of schedule 2 and of schedule 1 to the TCGA.

[Victoria Atkins]

On the simplification point, the replacement of the lower-rate band with the new tax-free amount supports our long-standing goal of a modern and simpler tax system. This is a simplification for low-income discretionary trusts, as income within the tax-free amount will no longer be taxed as it arises. The change also simplifies calculations when income distributions are made. The consultation last year outlined that where discretionary trusts make income distributions, the existing 45% credit given to beneficiaries with that income would remain, as would the continued need for trustees to top up their payments to HMRC to match that credit when the distribution is made. I am told that the Chartered Institute of Taxation agreed with that proposition, and the Association of Taxation Technicians saw that as largely a question of timing and did not see a particular issue with the principle.

The hon. Member for Ealing North asked about vulnerable beneficiary trusts. The measures are a simplification for those trusts, as for any other low-income trust, as there will no longer be the need to elect to have income taxed as if for vulnerable beneficiaries. Instead, the income will simply not be taxed as it arises. Most vulnerable beneficiary trusts are, indeed, discretionary trusts, and as I said earlier, both the Chartered Institute of Taxation and the Association of Taxation Technicians have opined on this. The measure does not affect the need for trust beneficiaries to consider their tax reliability on their trust income. On the hon. Member for Aberdeen North’s question, the amendment clarifies our intentions.