MPs expenses - The tax questions that have yet to be addressed

There's more to this scandal than has so far become apparent. And as this is the TaxBuzz blog I will focus here on the tax issues. I've identified 15 tax related questions below. I think these are simply a sub set of those that demand answers.

Reference is frequently made to the Green Book, subtitled "A guide to Members' allowances".
In its opening section it states that "Parliamentary allowances are designed to ensure that Members are reimbursed for costs properly incurred in the performance of their duties". (My emphasis). The current version was only published in March 2009, following a report in June 2008 after a full review of the MPs allowances and expenses.

Indeed, the entire first section of the Green Book contains exactly the restrictions and guidance that the media and the public has been saying should apply. I have copied the entire first section onto a separate page of this blog for ease of reference. I have also included a link there and quoted from the previous 2006 edition of the Green Book.

What we need is for the practical application of the rules to support the worthy aims set out in section 1 of the current Green Book AND for the tax rules to apply to MPs in the same way as they apply to all other employees and directors.

MPs' tax returns are very similar to those for employees and directors. However instead of the general 'employment' pages they have 'Parliament' pages. These have been specially designed to cover the income and expenses which MPs and Ministers have.

The Parliamentary Dept of Finance and Administration acts as the employer for the income paid to MPs.

So here are my 15 tax questions that have yet to be addressed. If you can think of any more, please add them as comments below this blog post. And equally if you know the answers or can offer reasonable explanations please do so.

1 - Does tax law really contain a blanket exemption for all amounts paid out as allowances?
(Section 292 ITEPA only refers to Overnight expenses allowances. Para 2.1 of The Green Book refers to "personal additional accommodation expenditure (PAAE)" which is 'available to reimburse Members of the additional expenses necessarily incurred in staying away from their main home for the purpose of performing their parliamentary duties'. Later sections describe other allowances that bear no relation to 'overnight expenses').

2 - Does the relevant resolution of the House relate to the principles or the details?
(Section 292 ITEPA exempts the 'overnight expenses allowance paid to a Member of the House of Commons in accordance with a resolution of the House'. Did the House agree the principles set out in section 1 of the Green Book or did it cover the entire contents of the Green Book?)

3 - Were MPs aware that they were voting themselves a more liberal expenses regime than applies to all other employees and directors?
(If MPs are to escape tax on generous expense allowances and 'reimbursements' why not all those workers who have to work long hours or who live away from home due to the requirements of their job?)

4 - Who will decide whether HMRC has the power to investigate the extent to which MPs have received reimbursement of expenditure that does not relate to 'additional expenditure necessarily incurred for the purpose of their parliamentary duties?
(The 2006 edition of the Green Book contains very clear statements that suggest that the same rules apply to MPs as to other employees and directors. Do we have an equivalent of the often maverick District Attorneys that take on the establishment in US dramas and films?)

5 - What is the correct tax treatment of the sums received by MPs that are now to be repaid?
(Tax law normally determines that such payments to employees and directors should be treated as loans and tax paid on the notional interest on this 'borrowed' money)

6 - Why does HMRC's guidance booklet 'MPs, Ministers and tax' refer to 'Additional Costs Allowance (ACA)' as if it were synonymous with the 'overnight expenses allowances' in s292 ITEPA 2003?
(The phrase 'Additional Costs Allowance' does not appear in the current edition of the `Green Book' but it is used elsewhere to describe a number of expenses - It is however used in the 2006 edition of the Green Book where it is noted that the ACA is 'sometimes referred to as the Living Away from Home Allowance, Overnight Allowance and Accommodation Allowance' - to confuse or to clarify do you think?).

7 - To what extent do HMRC have the authority (and available man power) to check MPs tax returns have been correctly completed?
(The expenses related section of the HMRC guidance notes that accompany the Parliament pages are explicit. "Expenses that might put you in a position to do your official duties, rather than actually doing them, are not allowable." This accords with the tax rules that apply to all other employees and directors).

8 - To the extent that MPs have been reimbursed expenditure that does not satisfy the principles set out in section 1 of the (March 2009) Green Book, can they be required to pay tax as would other employees and directors receiving money from their employer for personal expenditure?
(Such situations commonly arise where directors of small companies, that they own, use company funds to pay for personal expenditure).

9 - How culpable are the 6 MPs on the Members Estimate Committee which last reported on its Review of Allowances in June 2008?
(Michael Martin (Chairman), Harriet Harman, Theresa May, Stuart Bell, Nick Harvey and David Malean sat on the Committee which had 4 functions of which one was: to modify [the] provisions from time to time as the committee may think necessary or desirable in the interests of clarity, consistency, accountability and effective administration, and conformity with current circumstances;)

10 - Why were the comparable tax rules not also considered when that Committee considered the six main categories in which Members’ work is supported by the taxpayer?
(The report stated that it's top priority - in June 2008 - was to improve public confidence in the House by better systems of financial assurance! It identified the following categories in which MPs work is supported by the taxpayer: employment of staff; office costs; communicating with constituents and the public; travel; overnight costs; and redundancy).

11 - Why are MP's exempt from having to supply receipts for expenditure under £25 (previously £250) when ALL other employees and directors are not?
(Either this rule should apply to taxpayers or else MPs should be subject to the same record keeping obligations as everyone else).

12 - Why was it necessary to add a further £10,000 (now £10,400) 'communications allowance' in 2007/08 on top of the existing Staffing, Additional costs and incidental expenses allowances?
(If MPs were treated the same as other employees and directors then such expenses would previously have qualified for tax relief as being unfunded expenses incurred 'wholly, exclusively and necessarily' for the purposes of their job. Were they claiming such relief? If not, why not?)

13 - Are any of the auditors culpable or were their actions constrained by the terms under which they were required to operate?
(Para 24 of the June report notes that claims are not accepted without question and that claims are rejected often because the items claimed for are not allowable. para 25 states that "A process of audit is carried out, both internally by the Internal Audit team (in partnership with PwC) and externally (by the NAO). These audits check on the operation of the internal controls).

14 - How much or little guidance appeared in previous versions of the Green Book?
(para 71 of the June report recommends that the Green Book be 'Revised to specify more detailed rules and that the new version be brought into effect by 1 April 2009'. It seems likely that the previous version was even more liberal but did it contain the same aspirational standards and restrictions set out in section one?)
- I have now traced the 2006 edition of the Green Book and there is clearly a big difference in style and content.

15 - When the Prime Minister refers to MPs breaking the rules, does he mean the spirit of the rules or the letter of the guidance?
The Green Book contains precisely the obligations on MPs and restrictions to prevent abuse as one would expect. It then goes onto to permit a wide range of expenses that do not always meet the aspirations of the guidance itself. When the PM talks about sacking MPs who broke the rules, exactly what does he mean? - In this connection I wrote a piece for this blog in February 2008: Is it one rule for MPs and another rule for the rest of us?