MPs' tax muddle
Under section 292 of the Income Tax (Earnings and Pensions) Act 2003, MPs granted themselves exemption from tax on their overnight expenses.
The legislation says:
1) No liability to income tax arises in respect of any overnight expenses allowance paid to a Member of the House of Commons in accordance with a resolution of that House.
2) "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 - a) in the London area, as defined in such a resolution, or b) in the Member's constituency.
In the fiscal year 2007/8, the maximum that any MP could claim for overnight accommodation away from home was £23,083. And in that year, some 390 MPs claimed £20,000 or more.
Remember that under section 292, this is tax free. So the £23,083 is the equivalent of £38,471.67 of taxable income: it's a pretty hefty allowance.
But what strikes me as interesting is the definition in the Act of the "overnight expenses allowance" as "additional expenses NECESSARILY incurred...in staying overnight" (the caps, of course, are mine).
Now perhaps I'm wrong, but it seems to me this legislation should oblige Her Majesty's Revenue and Customs to take quite a close interest in the Daily Telegraph's revelations about how MPs actually spent their allowance.
One of the reasons the Telegraph's disclosures have generated a bit of surprise around the place is that a goodly number of MPs' claims for reimbursement have been in respect of expenditures that seem somewhat marginal, rather than strictly necessary, in relation to overnight accommodation.
But if that is the case, surely the relevant payments to MPs would then be liable to income tax at the 40 per cent top rate.
Or to put it another way, there may be something of a fiscal incentive for MPs to repay monies received in respect of the more exotic expenses claims - because if they weren't to do so, they might find themselves facing a tax bill.