MPs’ expensive revelations
HMRC is likely to take an interest in the rules and regulations behind benefits-in-kind paid to MPs
Any reader who ever had his employer provide a company car or private medical cover knows what benefits-in-kind are.
They are something which is a nice thing to have and which is provided by or paid by your employer.
Having said that benefits-in-kind can really mess up your tax code and can result in big bills at the end of the year.
Since benefits-in-kind are not money, a whole raft of rules has been created over the years so Mr Taxman gets his cut.
The logic is fairly simple. If you get a salary it is taxed. And for many people with what’s left they have to pay for their own car, medical cover and so on.
So by contrast what about someone paid a lower salary but whose employer provides such benefits? It would be wrong that the second person pays a lot less tax.
Thus HMRC has lots of rules on what will be the taxable value attached to something paid for by your employer.
The rules are even more cumbersome when you have paid something and then been reimbursed by your employer.
There are special relaxations for employees who need to spend time in another place for work — but on a short-term rather than long-term basis.
And then there are MPs! Guess what? Yes — the system seems to adopt a very light touch when tax aspects impact on MPs’ expenses.
Let’s first of all think about the subject of last week’s article — capital gains tax (CGT) on second homes.
I explained that HMRC could be told that an MP’s second property was to be treated as their main residence for tax purposes.
This could mean that the taxpayer helps pay for the second home and yet when it is sold any profit might well escape any CGT. The MP keeps the lot. CGT is the tax which hits ordinary mortals when they sell a holiday home or second home but these MPs escape it despite receiving public funding.
So let’s assume we have an MP who agrees with the Westminster Fees Office that one of their properties is to be treated as a second home.
This meant that all manner of spending on that home can be reimbursed by the Fees Office.
Now let’s assume that the MP has (for tax-planning reasons) nominated that same property as their main home. Many did just that.
Bear with me on this. Just trying to take it one step at a time. Now we have a Government employee (an MP) who receives perhaps £20,000 per year towards the costs of what they told the tax-man was their main home.
That in the eyes of any tax expert means they should face a tax bill. Not a CGT bill, but an income tax one.
This is because their private expenditure on their main home has been refunded by their employer. For every £20,000 of expenses this would mean a £8,000 tax bill (since all MPs are paid enough to pay 40% tax.)
The comparison is with an employee of a local firm whose employer reimburses their mortgage interest and the cost of buying a new washing machine.
That employee would have the tax bill, so why does the MP get away with it?
Sometimes a situation arises where an employee claims reimbursement of non-contentious expenses from work. This could include travelling costs or entertaining.
Unless the employer has applied for what is called a Dispensation then the fact of reimbursing the expenses means a special form needs completed. It is called a P11D.
It shows all the benefits in kind and the reimbursed expenses. For the employee to avoid being taxed on the reimbursed expenses he must then make a claim to tax relief for the same amount — via a self-assessment return.
It seems the MPs benefit from dispensations so that reimbursement in respect of the second homes does not have to be entered on their tax returns.
I suspect the tax people may want to go back to the terms they agreed with Parliament when they allowed the Dispensations.
If Parliament has begun reimbursing a wider range of expenses (plasma TVs come to mind) then HMRC may withdraw the dispensation and thus leave MPs vulnerable to income tax bills.
I think the ramifications of recent disclosures will run for a few years yet. I reckon the gravy train is encountering a few lumps, and may yet dry up.
I hear that HMRC is looking into the tax aspects of all these reimbursed expenses MPs receive. The information now made public is so detailed that it is a tax inspector’s dream-come-true.
Adrian Huston, a former tax inspector, is a director of Belfast tax and accountancy firm Huston & Co — www.huston.co.uk or 028 9080 6080