There is another aspect to the MP's expenses issue which impacts upon tax, namely the tax position of those MPs who have made claims under the now thoroughly discredited current system.
MPs are 'our' employees, and are taxed as such. The rules regarding the deduction of employees' expenses for tax purposes are notoriously strict, requiring those expenses to be incurred "wholly, exclusively and necessarily in the performance of the duties of the employment". The employee must also be obliged to incur and pay the expense as the holder of the employment. Not only is the legislation strict, but so is HMRC's interpretation of it.
Among the items that are generally acceptable to HMRC as employee expenses are the following:
Transport costs for business travel (other than home to normal place of work)
Reasonable subsistence costs (food and accommodation whilst working away from home)
£5 per night for incidental expenses whilst working away from home
Business telephone calls
Professional subscriptions relevant to the employment (for instance, my Chartered Insititute of Taxation and Institute of Chartered Accountants in England and Wales subscriptions)
The 'wholly' and 'exclusively' elements of the test mirror the test for tax deduction for the self-employed, and HMRC even on occasion allow for an element of apportionment of expenditure, which should not of course strictly be possible. The real problem areas are 'necessarily' and 'in the performance of the duties', although the other two tests do also give rise to practical issues on occasion.
By and large the issues regarding MPs focus on property, so I will concentrate on the application of tax law to expenses connected with property. The position regarding hotel accommodation is fairly clear cut, in that where the duties of an employment require the taxpayer to spend nights away from home, expenditure on overnight accommodation is allowable. It appears to me that an MP has two regular places of work, being the House of Commons and his or her constituency, which slightly complicates the matter. In any case, staying in hotels does not (perhaps understandably) appear to be the preferred modus operandi for MPs.
Travel expenditure is interesting for employees who may (or may not) have two regular places of work. If they only have one regular place of work, the cost of commuting there from home is not allowable. If they have two, travel between them is allowable, but home to work travel is not. So I assume MPs would argue that they always travel from (say) Parliament to constituency office and vice versa, rather than to or from constituency home or London property. It would be interesting to test the veracity of any such claims, methinks. Or maybe they argue that constituency home is a place of work, which would solve a lot of problems in this respect.
Miantaining permanent residential accommodation in a second place of work is a less common approach to the issue of employees working away from home (usually on cost grounds) but I have seen it done, and experienced some interesting issues in obtaining agreement to deductibility of costs from HMRC. In particular I acted for a Thames Valley hair salon, which opened a London salon. This required hairdressers from Oxford to work, sometimes until extremely late, in London, and the company bought a flat in London for them to stay in when this happened. Sometimes the employees concerned were director / shareholders, and sometimes not.
The only basis on which I managed to persuade HMRC that the accommodation was not a benefit-in-kind for the directors of the company was placing the only key in the custody of the company secretary (unrelated to the directors), and requiring him to keep a detailed log of use of the property. Had we not jumped through this particular hoop, HMRC made it clear that they would have regarded the property as available for use by the directors, and would have assessed benefits-in-kind on them.
Whilst this is not quite the situation of MPs, I do wonder about the 'wholly, exclusively and necessarily in the performance of the duties' test, and its application to London homes and expenditure thereon (or for that matter to a constituency home if an MP claims on that). Certainly HMRC's usual approach to such an issue would be to say that the taxpayer chooses where he or she lives and works, and that if one place is distant from the other that is a matter for the taxpayer. However, I accept that MPs are in a fairly unusual position in this respect, as they do clearly have duties to perform in two separate locations.
Of course the purpose of the 'key' regime I set up for the hairdressers was to demonstrate that the directors were obtaining no private benefit from the London flat, but only using it when the hours and place of work dictated its use. That is clearly a much trickier argument for MPs to run with their London homes, as there is no restriction on their ability to use these as and when they wish; after all they own the property. It would be interesting to see whether MPs and their families still use their London properties when Parliament is not sitting; if they do then the deductible expense argument seems to me to become impossible to win, for the following reasons:
1. The property cannot be used wholly and exclusively in performance of the duties if it is used as a London base for family holidays etc.
2. The necessarily test is notoriously the most difficult one to satisfy, as the necessity has to be imposed by the duties. In this case, paradoxically, it may be the easiest to satisfy if you accept that MPs need a London base.
3. 'In the performance of the duties' is even trickier. As Lord Chancellor Viscount Cave said in a famous tax case; "A man must eat and sleep somewhere" and "nor does he, as a rule, eat or sleep in the course of performing his duties, but either before or after their performance." So there are fairly formidable obstacles facing MPs here too.
Perhaps the key case to understanding MPs tax position on second homes is that of the Irish bank manager who often had to visit London for work purposes, and joined two London clubs to obtain accommodation and facilities to perform his London duties at the lowest possible cost. The subscriptions were held to be allowable as expenses in employment, on the basis that they were paid to obtain what was necessary to the performance of the taxpayer's duties, any benefit to him being merely incidental. I assume it is on this basis that MPs hang their claim for tax exemption on property-related expenses payments.
Of course what is acceptable as a deductible expense for tax purposes and what is acceptable as a second home expense need not necessarily be the same, but my understanding of the House of Commons rules in this respect is that they are framed on the same basis. Thus there may well be some significant tax issues for MPs to deal with, particularly as HMRC may not take the same generous view as the Commons authorities on what is spent "wholly, exclusively and necessarily in the performance of the duties of the employment."
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