Monday, May 25, 2009

MPs' expenses - the Chancellor's claim for help with his tax returns

How far will this scandal go? The Telegraph's lead story today concerns the Chancellor of the Exchequer. He has claimed reimbursement from taxpayer funds for the advice of his accountant on completion of his tax returns.

The print version of the story includes a copy of the invoice addressed to the Rt Hon A M Darling. The total fee note is for just £650 (plus VAT) for "all taxation advice and services for the year ended 5 April 2007".

I'm not sure what's worse:
  • The simple fact that he sought reimbursement of his accountants' fees - On what possible basis could he have considered these fell within the rules for MP allowances? [edit: I have examined this in a subsequent blog post]
  • The relatively low charges on the accountants' invoice - it's likely they are subsidised or else it must be a very small firm. Either explanation raises further questions.
  • The inclusion on the fee note of charges for:
  1. "Taxation advice and services... in connection with your duties as an MP, Minister of Trade and Industry and Minister of Transport." - One wonders what 'taxation advice' was required in this context.
  2. "Application for the renewal of deferment of Class 1 NIC" - this suggests that Mr Darling had another employment as well as his role as an MP. You can only claim to defer Class 1 NICs if you have more than one employment and want to avoid paying more than the annual maximum of NIC across all of your employments. Or is this another example of a special rule for MPs? [edited: A comment added below suggests that the second job is that of Minister of state]
  3. "Advice regarding the treatment of rental expenses against income" -this suggests that Mr Darling sought and received specific advice as regards the extent to which he could offset property related costs against rental income. Do we know to which property this relates?
  4. "Checking coding notices as they are issued, particularly in relation to your benefits in kind" - How many Coding notices did the Chancellor receive that year and which benefits in kind appear on there. From other disclosures in recent days it seems that all expenses and allowances are tax free so wouldn't appear on the Coding notice. Or were some there and the accountants asked for them to be removed and not taxed?
Let's be clear. MPs are not special. The law requires anyone who is obliged to submit a self assessment tax return to 'honour their tax liabilities' and to 'ensure that the correct amount of tax is paid'. Indeed you can only 'self assess' your tax liabilities after correctly reporting your taxable income and claiming only for allowable deductions.

According to The Telegraph Mr Darling was not the only Minister to be reimbursed for his accountants' fees. At least 8 other ministers are implicated.

For the rest of us the rules are quite clear. Employees and office holders are not entitled to any relief for the fees they pay to accountants for help with their tax returns or for tax advice. If anyone else was reimbursed by their employer for such expenses they would be subject to tax on the 'benefit'.

Only the self employed can claim tax relief as the accountants' work and advice is deemed to be part and parcel of preparing the annual accounts. And the costs of preparing business accounts are tax deductible. This facility is explained in HMRC Business Income Manual at BIM46450 and HMRC Enquiry Manual at EM9010.

What do you think about this latest revelation?


  1. Re: your point 2, he would have 2 employments ? One as an MP and another as a Minister of State.

  2. I have increasing had clients (no s/e or rental income etc) ring me to ask why they cannot claim my fees for completing their tax returns for them also?

    One, who now only has pension income, but needs assistance to reclaim overpaid tax as they cannot get her tax code correct - is extremely annoyed. I don't blame her.