Wednesday 14 May 2008 at 9.30am in Speaker's House ... cont'd
Sir Stuart Bell MP
Nick Harvey MP
Mr David Maclean MP
In the absence of the Speaker, Nick Harvey MP was called to the chair.
The Committee met with Guy Westhead (Assistant Director, responsible for Benefits, Expenses and Earnings), Dave Godwin (Public Departments (Technical), responsible for Members' Tax Matters )and Peter Seedhouse (Policy Advisor, responsible for Benefits, Expenses and Earnings) of HMRC
Capital equipment in offices
Members are different from the vast majority of employees in that they have to spend significant amounts on office equipment. Peter Seedhouse explained that Members are taxable on the sums they are reimbursed for buying capital equipment used in their offices. The Member would then claim capital allowances on the furniture or computer etc which would be set against their taxable income. Where the capital allowance rate is less than 100% the Member will not get relief for the expenditure in full until a later year. The key thing was that the Member owned that equipment. If the House bought and owned the equipment, the tax position would be differentMembers would not be taxed on the cost of the equipment used for their Parliamentary duties and they would not need to claim capital allowances.
The general expenses rules, covering what non-capital items could be set against tax were stricter for employees than for the self-employed. Relief could only be given for expenses incurred wholly, exclusively and necessarily in the performance of a Member's office. As with House spending, in such cases nothing which was party political would be set against tax.
Nick Harvey said in terms of public opinion this was the most difficult area for the House. Peter Seedhouse said there was a statutory exemption for overnight costs (section 292 of the Income Tax (Earnings and Pensions) Act 2003. Under tax law normally there was only tax relief for travel between home and a temporary place of work or between two permanent places of work but not between home and the permanent place of work. But for the statutory rule in section 292, overnight costs at either permanent place of work would not be allowable.
One possibility discussed for the overnight costs allowance was to merge it with salary. If so, then the amount paid might become taxable. If so, one option would be for the amount to be grossed up so the tax was paid by the Department of Resources. This was expensive because any tax liability paid for a Member would also be subject to tax and National Insurance contributions.
HMRC did have agreements with many employers so they could pay scale rates of daily subsistence free of tax and National Insurance. The scale rates would depend on the evidence the employer provided of typical allowable costs incurred by employees. Typically this might include £5 for a single meal or £20 for an evening meal when staying away overnight. Employers could also pay a Personal Incidental Expenses allowance where there was an overnight stay, tax free. Employers could also pay a £5 overnight incidental expense allowance tax free. This was covered by a statutory exemption (section 240 ITEPA). Higher rates were permitted for people working abroad. It was up to the employer to justify the appropriate rate for either daily subsistence or hotel costs to HMRC on the basis of past experience.
If the Additional Costs Allowance was split into housing and minor costs elements and it remained within the terms of the tax exemption at section 292 it would still not have to be reported to HMRC. Whether the housing element was spent on mortgage or rent was not a matter for HMRC. HMRC was aware that where employers moved staff for work reasons from a relatively cheap housing area to a more expensive area to provide assistance with mortgage interest payments, but only for a limited period of time. HMRC was also aware that some employers reimburse employees directly for additional tax paid on taxable expenses.
Guy Westhead pointed out that Members of Parliament were taxed as office holders not as employees or as self-employed.
Nick Harvey thanked the three officials for the frankness and clarity of their advice.