The lay press carried stories over the weekend indicating that HMRC were in part to blame for failure to properly scrutinise the tax position of MPs, but last week it seemed clear that the authority had relied on the work done by the Fees Office in checking the expenses to establish that no tax charge applied to the payments made. Members of AccountingWEB.co.uk tried a little digging of their own to establish the position, but with limited success. So what are the rules, and what tax issues will MP’s have to address, in addition to the other problems arising out of the expenses scandal? First, the law in regard to expenses for overnight stays away from the MP’s only or main residence is stated in ITEPA 2003, section 292 : 292 Overnight expenses allowances of MPs The first point to note is that the exemption from tax is provided to any expense paid in accordance with a resolution of the House of Commons. There is no qualifier for tax purposes that the expense be laid out wholly, exclusively or necessarily. The only recognisable qualifying condition comes in S292(2), which requires that the allowance is “expressed to be” in respect of additional expenses necessarily incurred by the member…in performing parliamentary duties…. Thus the expense payments are exempt from tax if they are authorised by a resolution of the House and are expressed as payments of amounts necessarily incurred for the performance of parliamentary duties. Note that the test is what the expenses are described as rather than what they are actually in respect of. I wonder if there is a real practical difference here? Some members will remember the great cases of the 1990’s when appeals were heard against a disallowance of expense claims under what was then Section 198 ICTA 1988 (or indeed S 189 ICTA 1970). My favourite was probably Smith v Abbott, in which it was ruled that journalists were not “in the performance of their duties” when reading competing newspapers – even though their editor (Mr Burden) stated that they were indeed performing the duties of the employment. The House of Lords ruled in 1994 [BTC66] that they were in fact “preparing to perform their duties” but not actually performing them. This case, and the many others that were heard on the test of “performing duties” would indicate to me that had HMRC indeed been responsible for scrutiny of the expense claims then very few of the more fragrant claims that we have heard of over the last week would have been successful – including claims for dog food, moat clearance, patio heaters, wisteria removal, tennis court repairs - the list is probably almost endless; but have the MPs in reality got a tax problem? My view on this count is no, provided the claims were within the rules set out by the resolution of the House, and are described as set out in Section 292(2) then they are immune. So what does the “Resolution of the House” authorise? There is plenty of guidance available to explain what MPs should be able to claim for. The introduction to the Green Book (which contains the guidance on expenses, but not the details of the resolutions) states that “parliamentary allowances are designed to ensure that members are reimbursed for costs properly incurred in the performance of their duties.” Once again the reference to the performance of their duties is made. The Green Book goes on to explain the code of conduct on expenses adopted in 1995. The principles set out in the guidance underpin the allowance regime. Of most specific application to the question of taxation are the following: Further guidance on applying this principle follows: “Is this expense genuinely incurred by me in my role as a member of parliament as opposed to my personal capacity? In respect of the overnight costs allowance (referred to as PAAE), the principles of the claim are then set out as follows : Purpose of the allowance The other area of concern is the exemption awarded for CGT, and how this has been used. While accountants will generally accept the availability of the main residence exemption, and indeed the opportunity to maximise the benefit of the exemption by careful elections by those with more than one home, I would be particularly concerned to check the status of CGT claims alongside the claims to additional costs allowance for the “second home” to ensure that the claims are consistent with each other. Although the owner is permitted to choose which is regarded as his main home for tax purposes, the basis of claim set out above indicates that the claims are made when “away from the main residence”. It would be interesting to know whether MPs chose to call different homes their “main residence” for tax purposes and expense claim purposes. And what of Hazel Blears? Has she indeed amended her tax return, or has she made a voluntary disclosure to HMRC that her return contained an inaccuracy for the year concerned? If so, would it be appropriate to seek interest (definitely) and penalties (possibly)? It's a pretty pickle all round. If MPs want to clean up their act, I suspect that a change in the law might be appropriate to ensure that HMRC can retain the right to check the expenses for tax purposes. That way the voter can be assured that the rules are (nearly) the same for everyone. AccountingWEB.co.uk 18-May-2009Tax zone
Feature
MPs, their expenses and tax by Rebecca Benneyworth
As the drama regarding MP expenses continues to unfold, with the threat of potential criminal prosecution now hanging in the air, a number of AccountingWEB.co.uk members have been struggling to understand the tax position of MPs with regard to both their expense payments and their CGT private residence exemption.
(1) No liability to income tax arises in respect of an overnight expenses allowance paid to a member of the House of Commons in accordance with a resolution of that House.
(2) “Overnight expenses allowance” means an allowance expressed to be in respect of additional expenses necessarily incurred by the Member in staying overnight away from the Member’s only or main residence, for the purpose of performing parliamentary duties—
(a) in the London area, as defined in such a resolution, or
(b) in the Member’s constituency.
“Claims must only be made for expenditure that it was necessary for a member to incur to ensure that he or she could properly perform his or her parliamentary duties.”
Is this purchase supporting me in carrying out my parliamentary duties? Defining parliamentary duties is difficult but members may wish to consider…the generally accepted parliamentary functions: the legislative role; the oversight and accountability role; and the representative role, including dealing with constituents’ problems …”
PAAE is available to reimburse members for the additional expenses necessarily incurred in staying overnight away from their main home for the purpose of performing their parliamentary duties. It may only be used to meet the following costs:
So the structure of the allowance meets the requirements of tax law, and if paid in accordance with these principles, the amounts claimed are not subject to tax. What is moot is whether the same standard is applied in determining “necessarily incurred” and “in the performance of parliamentary duties” when scrutinised by the fees office as would be applied by HMRC in considering expenses claimed by employees.
Number of comments: 5
Categories: Tax Features, Tax - Rebecca Bennyworth
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Monday, 18 May 2009
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