Peninsula TaxWise Chief, Des Shaw, Explains the Law Regarding MP's Expenses

Peninsula Team

June 03 2009

MPs’ Expenses and Ordinary Folk

Everyone has seen the headlines regarding MP’s expenses and everyone has spoke out about their outrage to the situation and how this could have happened. Peninsula TaxWise are on hand to aid all clients with advice on looking at their expenses policies and implementing one where needed, just call them on 01455 852555.

Peninsula TaxWise chief Des Shaw gives his opinion on the expenses row and points out how MP’s are treated differently from us, ordinary folk.

In the mid-1980s, ultrasound technology was in the process of being introduced to NHS hospitals for the monitoring of pregnancies. Unfortunately the NHS training regime was struggling to keep pace with technological advances and nurses on maternity wards became frustrated, to the extent that many of them voluntarily paid for their own ultrasound training. They assumed that the cost of the training would be tax deductible, only to discover, after the event, that their claims were rejected by Inland Revenue.

The rules on expenses in employment make it difficult for any employee to claim. To qualify for tax relief, the expense has to be incurred wholly, exclusively and necessarily in the performance of the duties of the employment. (Unlike the rules for self-employment, which do not stipulate “necessarilyâ€). The tax authorities took the view that the cost of the nurses’ training was not incurred in the performance of the job; it only put the employee in a better position to do the job. The view was also expressed that had the training been necessary to do the job, then surely it would have been provided by the employer.

No doubt the nurses involved felt aggrieved by this decision. After all, they were only trying to provide a better service to the public, nurses wages were generally regarded to be on the low side, and, at the end of the day, the costs they were trying to claim were relatively modest. No doubt many Inland Revenue staff also felt that the situation was unfair. But Revenue staff were always instructed that the rules set out in the Taxes Acts must be applied strictly, and without favour to any particular group.

It appears however that the rules that apply to other employees do not apply to MPs. Parliament has created special legislation to cover the overnight expenses of its members. The actual wording is as follows:

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. “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 - in the London area, as defined in such a resolution, or in the Member’s constituency. (Income Tax (Employment and Pensions) Act 2003, section 292.)

Readers will note the absence of the “wholly, exclusively and necessarily†restriction. The expense merely has to be “expressed†to be necessarily incurred. This appears to mean that if the MP incurring the expenditure says it was necessary to do his or her Parliamentary duty, then that is sufficient.

Detailed guidance on what MPs may claim is set out in an internal Parliamentary publication known as the green book. None of this guidance has the force of law however. Now we are being told that many claims were not within the spirit of the rules as set out in the green book. It seems that the rules have been wide open to interpretation. This is in sharp contrast to the strict restrictions applied by the tax authorities to the claims of ordinary working people. If HM Revenue & Customs catch an employer reimbursing expenses that are not strictly allowable, they will expect the employer to pay the tax on the reimbursements, going back over at least 6 years, plus interest and penalties. Not a nice prospect for us more ordinary folk, however not an issue for MP’s who are currently only volunteering to pay back one years worth of claims. Hopefully the revelations will put an end to so much wastage of public funds!

If you have any queries related to expenses don’t hesitate to call the TaxWise Advice Service on 01455 852555 or go to www.-pbs-taxwise.com.

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