MPs, their expenses and tax by Rebecca Benneyworth

I love the notion of a fragrant expenses claim. I suppose wisteria falls into this category. That must make the others merely flagrant.

I remember attending one of Rebecca's seminars after the first round of PAYE online filing incentives were due to be paid. She explained how surprised HMRC were at the number of employers claiming the incentive. Of course neither she nor we were the least bit surprised. Her words were "If you put money on the table people will take it". Exactly. It is human nature. We all do it. And if MP's are offered easy money through their pay and allowances system should we be surprised if they fill their boots? Of course not. They are holding up a mirror to the rest of us.

We have to ask ourselves how much we are willing to pay as a basic salary for an MP. At the moment a backbencher gets about £65,000. Is that too much or too little? I don't know but that is where the debate has to centre.

it will be interesting to note how HMRC will use their "naming and shaming " policy in this repect , how the police would investigate these cases in detail and the action taken by CPS

Pn

I think what annoys many people is, for example, the zeal with which the Govt has gone after 'loopholes': IR35, 24 months rule, section 660a, nil CT rate on below £10k, MSCs and Income splitting spring to mind, contrasted with (to mix metaphors) the mote in the MPs' own eyes ...

MikeC: Boom-boom !!

Mike W:

Mote or Moat?

I'm not sure I agree with Andrew's initial comments below.
I had a good look though the current and the previous versions of the Green Book this morning.

I've identified 15 tax questions to which we have yet to hear answers. (They're on the Tax Buzz blog if anyone's interested.

What's clear to me (as has also been identified by Rebecca above) is that the Green Book (both editions) sets out exactly the right sentiments and high standards as we would expect. The examples given in the book then seem to ignore those ideals. Is it the system, the encouragement of the fees office or simple greed on the part of MPs that led to them stuffing their noses in the trough?

On the CGT question however, I do entirely agree with Andrew (below) and note that Nick Clegg has also been asserting that the whole gain not just the tax should be paid back when a 2nd home is sold. Absolutely right!

Mark Lee
Tax Advice Network

Andrew, the problems that we have now are purely political. I sympathise with what you have to say but this disaster has been 100 years in the making. It was only the events of 1911 that made it possible for MPs to give themselves a salary and expenses without it being nit picked over by a House of Lords.

The hassle now comes from us and its clear that the original design has been left behind by contemporary life and values. If we are now going to scrutinise how MPs receive their income and expenses then the accountancy profession has an important role to play.

The Americans have a saying: "we don't eat our own dog food". Which means what is served up to others is not what is consumed in-house. This is the nub of the problem. The perception is that MPs have been dishing out tax law without having to abide by it themselves. People are quite rightly outraged.

I still say that they have to be paragons with regard to tax and expenses because they set the rules. They will come up with something but if we don't like it we can change it through the power of the media and professional body representation.

I belong to a school of thought that says the service element of MPs employment is higher than reward. If the salary was set at £400 in 1911 and we inflate this by 40 then their pay should be around £16,000 now, which is too low. Perhaps it should be set to the median of ordinary people, which is around £25,000.

MPs would say that if you pay peanuts you get monkeys. So what are the qualities we want in and of our MPs? Even this is now being given scrutiny by the public, all very healthy if you ask me.

I do not want to sound like an apologist for our trough feeding politicos, but I cannot help but feel that any sort of tax led analysis of the MPs activities runs the risk of misdirecting attention from what might prove to be more worthwhile or justifiable avenues of scrutiny, or public retribution.

Firstly, whether MPs pay tax, and on what they pay it, seems an irelevant issue given that they are being paid out of the publc purse. Paying it out with one hand, and collecting however much back with the other, only leads to the conclusion that the true, or net cost, to the public purse is all that matters. And, with some, if not a large number, it doesn't look like good value for money to me and certainly when it comes to looking at the unholy mess they have made of running the country.

Secondly, the PAAE (ACA, second homes allowance) has been written in such a manner that, with a few exceptions, I would argue that MPs are beyond legal challenge so long as they can get expenses to fall within the rules, and no matter how extravagant they may be. It might not be palatable but, as a matter of process, one can envisage that any HMRC challenge would be met with an appeal and sent to the courts. The courts would say that they can only examine the rules as they apply to any one MP by scrutinising the entirety of the rules and that would be outside the remit of the courts who cannot interfer with the workings of parliament.. The exceptions would be those who have claimed for expenses which, by description, fall within the rules, but which have not been incurred as fact, e.g., phantom mortgages, furniture used in non-second homes. Here, the criminal law must be in point and not just the Theft and Fraud Acts but, also, the common law offence of cheating the public revenue.

Lastly, moaning over the avoidance of CGT on seond and third properties seems all a bit daft. There is, and never has been, anything in the CGT code to demand that an elected property is a "main" or "first" home etc. Arguing for such, in the context of MPs, is a conflation of two different sets of rules. It may play well for the bloke in the pub having a rant, but it is a go nowhere line of argument. MPs are no different than many others in that they have taken lawful advantage of some, alebit, very lax laws which are available to all. To my mind, the issue is not whether MPs should pay tax on a seond home related profit but whether, given that the profit would have been partly or wholly made on the back of public subsidy, whether they should expect to keep any of the profit whatsoever. There is a moral argument which could be made but there might also be a legal one, based on fiduciaries not being able to profi when acting in that capacity.

The legislation seems designed to leave the decision as to "wholly, exclusively and necessarily" to the Fees Office or MPs themselves. However, it is a term with a clear and established meaning with clear case law to support it. The question then is how much discretion is permitted before the principle of abuse of power or misfeasance could apply. Presumably that is something that one or two newspapers have been considering and whether to seek judicial review.

What are others' views on the beneficial loan point? If an MP repays a sum in excess of £5,000 then does Chapter 7 Part 3 of ITEPA apply to determine a benefit in kind.

Why? They get plenty.

If they really need their London accommodation paid for then build them somewhere they can all stay when in London.

I think it would be useful to compare the MP's expenses and their tax allowances to those in employment especially directors.

For example, if a director takes a group role and has to therefore travel between 3 locations, the Inland revenue can state that the individual has 3 permanent addresses which in turn means that any travel or over night stays are in effect a benefit in kind and is taxed on any expenses paid.

The MP on the other hand, gets paid for travelling and for another address and is exempt from any tax liability

Fair or what?

regarding how HMRC should treat the MP's

These peopel should be treated like any other member of public as if they were emplyed by private companies.

The Mp's were not willing to volunteer the infromation so let them see how ordinary voters are treated by HMRC. Let them feel the full force of it by paying interest and the relvant penalties. How about false information with a view to providing fraudulent information.

Maybe they should emply independent accountants to help them scrutinise their expenses and if they stand the "reasonable" test.

I believe the problem was that the expenses system was changed in 1983 to make up for the fact that MP's salaries were not increased in line with their pay review. You can then see that a culture started and has contiunued that the expenses should make up the difference. That has now led to extravangant expense claims which have been paid and once one MP receives payment you can see that an avalanche is started.

Best to increase the basic salaries (in staged payments) and scrap the expenses system. Government owned accommodation (the Olympic village after 2012?) should only be provided where the MP's own home is at least 20 miles outside London.

In the meantime, HMRC should be invited to examine a cross section of past expenses, come up with some rules which can be adopted to initiate repayments of the non-allowed claims.

I agree HMRC is the only body that might best be suited to look after MPs taxation affairs perhaps by encapsulating the fees office within HMRC. This would benefit us all in that it would demand better transparency of what goes on within HMRC. The American IRS for example publishes minutes of high-level meetings HMRC does not.

The other aspect is that MPs have to be beyond reproach because they set taxation law. If they fall foul of tax law then HMRC would be responsible. Would MPs allow this without the protection of a legal duty of care from HMRC? Would you want somebody on the board of your business that was monitored by HMRC?

The other way of doing this would be to make it the responsibility of the Lords. But this is not going to happen because peers all carry around a metaphorical ball and chain as prisoners of the Commons. The American Senate has taken to hollowing out non finance bills to fill them again with finance instruments. I don't think the Commons has any willingness for this?

At risk of being off-topic, I think there is a danger in a culture of 'entitlement' in which we (all of us to some degree, I suspect) believe we have an 'entitlement' to a level of income 'because we are worth it' (with apologies to the advertising of a certain cosmetics company!).

Where I see cases of, for example, theft from employer (in the course of my forensic accountancy work) it is often the case that the dishonesty started because the employee somehow believed that he was 'worth' more than he was receiving. So he took what he thought he deserved. (And very often went on from there when the initial theft was not discovered . . . )

Perhaps our MPs thought they were not getting what they 'deserved' and so claimed amounts over the top to 'balance things up'?

In essence there was a tension between the public face of an MP being required to show pay restraint and to be seen to give a lead in that respect, and the private view of what the MP himself believed he deserved (even if the public might not fairly recognise that). That tension may have allowed dishonesty to creep in.

David

Yes its true that the current situation means HMRC are not responsible to check over MP's submissions, the fact remains the way in which the guidlines are set out, means it should have been looked at a long time ago, and changed.

I first found out about what happens to MP's submissions to HMRC a few years ago at an HMRC meeting.

They mentioned that any submissions are passed through all local offices and go directly to processing without any checks done.

This seemed to me at the time a very easy exploit in what you can and can not claim, and relying on MP's being honourable to submit proper expenses was flawed from the start.

Why this has never came to light before now, is beyond me, and i do wonder if those "in the know" just let it continue, if thats the case, its not just the Fees office that should take part of the blame.

MP's should not be treated any differently than the public self employed, and if they are elected by us, then they should also be treated under the same rules and regulations as us.

I have a lot of respect for Professor Sikka but I think his contribution below is somewhat off topic.

However I have also been considering the comparison between MPs and members of the ICAEW (and indeed other CCAB members). We are all obliged to comply with a common set of fundamental principles (which has also been adopted by the tax bodies). The first two such principles are clear:

(a) Integrity
Professional accountants should be straightforward and honest in all professional and business relationships.

(b) Objectivity
Professional accountants should not allow bias, conflict of interest or undue influence of others to override professional or business judgments.

Failure to comply risks disciplinary action and possible expulsion.

Is there nothing similar for MPs?

Mark Lee
Tax Advice Network

Will the accountancy bodies learn any lessons?

In common with the ICAEW, ACCA members are not allowed to elect officeholders or chief executives. They all claim expenses and also take their partners or global jaunts. Details of their expenses are neither published not subject to any vote at AGMs. No one ever elected any of their spouses to any posiiton of responsibility. We need opnness for all levels of society and what applies to MPs should also apply to profesisonal bodies. It is time ordinary members directly elected all officeholders and chief executives, approved chief executive remuneration and expenses of all council members. There should be no expenses for their partners.

Until the accountancy bodies put their own house in order no one will ever attach any credibility to their words on good governance.