The Legg report ignores the tax consequences of MPs expenses

Sir Thomas Legg's report on MPs' expenses proved that abuse of the system was widespread with more than half of all MPs required to make repayments. When the scandal first became apparent through the Telegraph's reports last year I started to blog here about related tax issues.

A shameful footnote to the whole affair is that the Additional Costs Allowance is tax-free - as determined by the 1983 Finance Act (which, like all tax law, was passed by Parliament who, on this occasion, understood precisely what they were doing).

Having previously identified many tax related questions raised by this scandal I have summarised the 3 most crucial ones below. It would be good to have these addressed as part of the wholesale review of the system for reimbursing MPs' expenses.

1 - Will MPs be subject to the same tax consequences as employees and company directors who repay excess expenses?
Tax law normally determines that such payments to employees and directors should be treated as loans until they are repaid. HMRC then charges tax on the notional interest on this 'borrowed' money. In the case of MPs this would mean paying tax on such interest to cover the period from when they received the money until it is repaid. Their employer is liable to notify HMRC of the dates and sums involved.

2 - Why are MPs exempt from having to supply receipts for expenditure under £25?
Until 2008 the exemption for MPs related to expenses upto £250 and this system has been widely criticised. The Telegraph reported that MPs will have to produce receipts for all claims of more than £25 as part of a major overhaul of their much-criticised system for claiming expenses. However all other directors, employees and those running their own businesses have to keep receipts in repsect of all business related expenditure.

What is the justification of continuing a more lax system for MPs? Either the normal rule should apply to all taxpayers or else MPs should be subject to the same record keeping obligations as everyone else.

3 - Are MPs really exempt from tax in respect of all their 'expenses'?
The tax exemption introduced by Finance Act 1983 is now contained in Section 292 ITEPA. However this only refers to Overnight expenses allowances as defined in para 2.1 of The Green Book and covers "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'.

The Additional Costs Allowance (ACA) to which Sir Thomas Legg's report refers is a phrase that has not been used in the Green Book since 2006 but seems to be considered synonymous with the Living Away from Home Allowance, Overnight Allowance, PAAE and the Accommodation Allowance.

However the Green Book goes on to describe other allowances that bear no relation to 'overnight expenses'. Given the abuse of the 'ACA' shouldn't there also be a review of the extent to which MPs have received reimbursement of other expenses - especially as no tax exemption applies in such cases.

Answers on a postcard please.....