To be published as HC 1484 – v




committee on Members’ Expenses

The OpEration of the Parliamentary Standards Act 2009

Thursday 27 October 2011

Dave Hartnett and Mary Aiston

Evidence heard in Public Questions 289–311


1. This is a corrected transcript of evidence taken in public and reported to the House. The transcript has been placed on the internet on the authority of the Committee, and copies have been made available by the Vote Office for the use of Members and others.

2. The transcript is an approved formal record of these proceedings. It will be printed in due course.

Oral Evidence

Taken before the Committee on Members’ Expenses

on Thursday 27 October 2011

Members present:

Adam Afriyie (Chair)

Guto Bebb

Mr Edward Leigh

Priti Patel

Mr Nick Raynsford


Examination of Witnesses

Witnesses: Dave Hartnett, Permanent Secretary for Tax, HMRC, and Mary Aiston, Personal Tax Product and Process Director, HMRC, gave evidence.

Q289 Chair: Welcome to our inquiry, Dave Hartnett. Thank you very much indeed for sparing the time, and I would like to welcome Mary Aiston as well. This inquiry is looking at the Parliamentary Standards Act 2009, as amended in 2010. What we are looking at are the objectives of the Act and then, in the operation of the Act subsequently, whether or not the objectives have been achieved and to what extent, and whether or not we are going to make some recommendations for some changes. The reason that your evidence has been very useful, and also quite vital, is that if there are any recommendations for any changes, clearly we would need to feel confident that HMRC think that they may be viable options and we have an understanding of that. It should be a very brief session, and thank you very much indeed for coming in.

Can you confirm that HMRC’s aim is to treat MPs, as far as possible, the same as everyone else when it comes to the taxation and treatment of their expenses, while also taking account of distinct aspects of an MP’s role?

Dave Hartnett: We aim to treat all taxpayers the same in relation to the legislation, which touches all of them. With MPs being largely within the legislation that applies to income and benefits from employment, we do try to do that, but MPs clearly are pretty unique in several ways and there is then special legislation, which puts them in a slightly different position from other taxpayers, but in the quality of service and those sorts of issues we aim to be identical.

Q290 Chair: Thank you very much. You have already alluded to it in your first answer, but can you also confirm or make some observations about the type of employment status that MPs may or may not have, or the possibilities of which types of employment status they may have from the perspective, again, of HMRC? Some people argue that we are self-employed because we run small businesses. Some people argue that we are employees of Parliament. Some people argue that we are office holders like somebody high up in the church with a stipend. I just wonder if you could make some observations about how you would see that.

Dave Hartnett: Of course. Maybe I can start with the easiest part of your question. We in HMRC cannot think of a group who are less like the self-employed. Self-employed people are independent and carrying out work and endeavours and the like for themselves for gain, so we do not think you are self-employed.

The opposite position is that it is very hard for us to think of a group who are more like office holders. Our working definition of an office holder is somebody who works in a role that exists independent of what they themselves bring to it, so we see you as office holders, the Member of Parliament for wherever has endured for a long time, boundary changes and all of that allowing, and we do not see you as employees.

Q291 Chair: Thank you very much indeed. I think you have answered my next question, which is, therefore, you would conclude it is viable-in fact, from what you are saying, it is probably more appropriate to consider a Member of Parliament an office holder rather than the alternative forms of employment status, from HMRC’s point of view.

Dave Hartnett: Yes.

Q292 Mr Leigh: Good morning, Mr Hartnett. Nice to see you again, after many appearances we have had together in the past. I want to ask you just about the tax consequences of various things. As you know, MPs can get a London area living payment. In fact, London MPs can only get that-I think it is about £5,000 a year-and MPs outside London or beyond commutable distance can either claim that, in which case they get their £5,000 a year and it is taxed, or they can claim expenses, which presumably are not taxed. If there was a shift to a more widely-based supplement system, there would be no difficulty with that; it would presumably just be taxed. For instance, if an MP outside London was given some sort of supplement instead of expenses, you would just say, "It is up to you. You can make the decision," and it is taxed. Is that how it happens?

Dave Hartnett: Broadly, yes. If I can try to break it into various parts, the MP would have their salary and would have a supplement or additional sum, which I assume, by the way you have described it, would be a fixed round-sum amount.

Mr Leigh: It would be a fixed flat-rate sum.

Dave Hartnett: We always, in the context of income and benefits from employment-and I will keep using that technical term, if I may, but office holders are in there as well-seek to tax round-sum allowances or supplements. But then there is nothing to stop the MP looking to see what element of the expenditure they have made would qualify for tax relief under the various deductions that are applicable to people in employment or office holders.

Q293 Mr Leigh: The advantage, of course, of a supplement system, if it is taxed, is you take the tax and then it is the MP’s money, and what they do with their life or with the money is up to them, isn’t it?

Dave Hartnett: Yes.

Q294 Mr Leigh: Does the same apply to travel?

Dave Hartnett: Could I just add one thing? The Chair sort of raised it at the start. There would be an issue for us, perhaps, in HMRC-not a big issue-with that sort of approach. It would be a little more resource-intensive for us. I do not make a big point about that, but just for the sake of being complete, the way it works at the minute is we have a relatively small number of people working on MPs’ salaries and the like.

Q295 Mr Leigh: But presumably, with the case of the London MPs who claim this, you just tax it at 40% or something, don’t you? They get their £5,000, the 40% comes off and that is that. Does the same apply to travel? I am not quite sure. Explain how that works.

Dave Hartnett: I am going to ask Mary to do that, if I may.

Mary Aiston: A payment that is in general terms for travel but without specifically being for particular journeys, where again it was open to the MP to spend it in any way they felt or indeed just keep it, we would still want to tax and then leave it to the MP to come back and claim it from us in respect to specific expenses that he or she considered allowable.

The area where it is different is if an employee receives an amount where there are strict rules that the employer sets, that say, "Actually, we only paid this in relation to particular types of journey and particular types of circumstances." Sticking with normal rules for the moment, in those circumstances we would reach an agreement with the employer, which is called a dispensation, which is where HMRC is saying we are satisfied that the terms under which these payments are made are sufficiently strict. Rather than going round the roundabout of taxing it only to have individuals claim the full amount of relief, we will take it out of tax right from the start, but that can only happen where there are clear rules.

Q296 Mr Leigh: It is a very clear thing that you only claim your car journey not from your home but from two points of work, all that sort of thing, and you say, "Right, that is clear, we will not tax it," but if there was a general supplement system on travel so, for the sake of argument, if you were an east Midlands MP or Westminster MP, you could get so much, then you would say, "That is general, we will just tax it; then it is up to you." Is that how it works?

Dave Hartnett: Yes.

Mr Leigh: That is fine. That is all I wanted to know, thank you.

Q297 Chair: Am I right in thinking that this kind of approach applies to many other situations across the UK?

Dave Hartnett: There are a lot of people who receive what is called a flat-rate sum and what we might call a round-sum allowance, which we tax, and then we rely on them to make their individual claims. Sometimes we will, as Mary has said, be able to agree with an employer that some element of the round sum is not taxed.

Q298 Chair: This would not be some sort of special treatment for MPs in that approach; this would be a pretty common approach?

Dave Hartnett: Yes.

Chair: Thank you very much indeed.

Q299 Guto Bebb: I will follow on that. I just want to clarify this point because it is quite important, I think. From the Revenue and Customs point of view then, would the payments of a taxable supplement to cover issues such as travel be acceptable and doable?

Dave Hartnett: You ask me a very difficult question. I will explain why. We could do that, if we were asked to do it. The days when the Inland Revenue or Customs led on tax policy have gone. We are deliverers and administrators now, so we will do what we are asked, if I can put it that way. If the law changed or the approach changed and we were asked to deliver, we would do that.

Q300 Guto Bebb: But would the added complexity be falling on Revenue and Customs or would the added complexity fall upon the Member of Parliament?

Dave Hartnett: I think there is a bit of complexity or a bit of additional work for both. Us, because there would be lots of claims; you, because you would have to keep-I am sorry I do not know precisely what the IPSA recordkeeping requirements are-I have read about them-you would have to keep pretty good records as well.

Q301 Guto Bebb: It is not a simple way forward for the MPs you are arguing then, in effect?

Dave Hartnett: I am saying it has to be thought through.

Q302 Guto Bebb: On the other side of the equation then, in terms of the current expenses regime for those MPs living outside of London, would it be feasible for a supplement to be provided in terms of paying for a flat or accommodation in London? Would that create a similar complexity from a tax point of view?

Mary Aiston: This touches on an area where MPs are different from a lot of employees, and the reason why we have specific legislation around the travel and subsistence expenses for MPs we do not have for anyone else. That issue is that MPs, as an unavoidable part of their constitutional role, have two permanent places of work, as we would define it: Westminster and their constituency.

For any other employee or office holder, travel between their home and any one permanent workplace-and there are other employees who have more than one-would always be a taxable expense payment and we would never give somebody a deduction for that because that is what we term ordinary commuting, something that everybody has to do to get to work.

In recognition of the fact that MPs have a unique constitutional role and that having two permanent workplaces is an unavoidable part of that role, we have special legislation that exempts payments that IPSA makes in certain circumstances to enable MPs to be away from home and have accommodation in London if they are not a London-based MP.

That means that if you change the approach for paying the expenses, if we left the legislation unchanged, then it would still cover what IPSA are willing to pay. If you wanted to change to a supplement-type approach around something we were just talking about, but did not change anything else. At the moment, under the ordinary legislation that applies to ordinary employees, there would be no tax relief for the costs associated with travelling and staying overnight near a permanent workplace; for MPs, that is Westminster and the constituency.

Q303 Guto Bebb: I just want to clarify something. What would be the situation if IPSA, for example, paid directly for accommodation in London for Members of Parliament? Would that change the situation from a tax point of view, if IPSA provided accommodation with no money going through the MP as such?

Mary Aiston: The way the legislation is set out at the moment, it hinges on what IPSA are prepared to pay, so you could look at how far that would go. We would need to check to pin down all the particular arrangements that were put forward, because the legislation is couched in terms of what IPSA pays, which is quite unusual for employees, but it works here because of IPSA’s particular status and the unique arrangements for MPs. We could look at that, depending on the particular proposals that were made.

Dave Hartnett: It would need to be thought through very carefully, though. It wouldn’t be very difficult to drop into a tax charge, the way the law is currently cast, so we would want to work with whoever was going to do something like that to make sure it would achieve what you are seeking.

Chair: It seems to us there are kind of two distinct types of payments, possibly three, to MPs as well. There are those that people would associate with the MP personally, which is travel and accommodation on the one hand, and on the other hand you have the office costs, the provision of computers, office space, toner cartridges, stationery, and so on, which people do not generally construe to be personal to an MP, especially if the money is not going to the MP’s pocket first. We are just trying to get to this part, which is why I want to quiz you a little bit further, which is to get to the bottom of how tax treatment could potentially differ between the two of those. Thank you very much.

Q304 Mr Raynsford: Can I focus on this issue of office costs, as such? If these were met centrally by IPSA, either by means of an overall figure available or provision of certain designated needs-office equipment and supplies-or by a range of additional, acceptable supplements but where the payment was entirely made centrally and was not in any way related to the MP, would that create any tax issues?

Dave Hartnett: Let me start and Mary will, I hope, come in. I think, Mr Raynsford, if you had not mentioned so many different supplements, I would be less concerned. If there was an approach where IPSA or whoever effectively provided the office service equipment and all of that, there is already legislation in place to deal with that, which I think could probably endure without any difficulty. If in some way the approach was to break up into various constituent parts what IPSA was applying, that gets a bit more difficult. I am sorry I have to go back to my earlier answer, but there is a lot of analysis to do to make sure that works. The law might need to be changed, but we have to look.

Q305 Mr Raynsford: I am envisaging a situation where there could be quite considerable differences depending on the volume of case work or other activities-

Dave Hartnett: I do not think that would give rise to a problem.

Mr Raynsford: -where additional payments had to be made to some MPs as against others. That is the differential. I am not talking about supplements perhaps in the same way that might have been considered in the wider context of travel and accommodation, but purely to do with an efficient management where costs are met centrally, but there is some flexibility to reflect differing workloads.

Dave Hartnett: I don’t envisage any particular difficulty around that. There is nothing in the legislation that goes to volumes, as it were.

Q306 Mr Raynsford: Can you see any merits in the system of central provision for office costs?

Dave Hartnett: Probably. It feels as though there could be efficiency in there. It would be easier for us to ensure that checks be carried out and were done effectively. I am not sure it is a great deal.

Mary Aiston: I think anything where there is some sort of central control and a central set of rules that we can look at the rules and say, "What do we think about those?" and are we satisfied that there are controls in place to ensure that those rules are being followed-doing that just once is marginally easier than looking at individual claims for particular items.

Q307 Mr Raynsford: Can I just take you on to the question of constituency offices? You have rightly identified the fact that MPs have two different permanent places of work. Are there any issues about office costs within the constituency, within the sort of framework we have been talking about, as against office costs here at Westminster?

Dave Hartnett: No. The sort of thing that we would be thinking about in the constituency is broadly the same. It is identical, broadly, particularly if the constituency office is an office or separate from the MP’s home. Once you get into the domestic situation, then we are going to at least occasionally want to know about private use and that sort of thing, but nothing more.

Q308 Mr Raynsford: But if this is purely a separate constituency office, which does not duplicate-

Dave Hartnett: Identical answer.

Q309 Mr Raynsford: There is not a problem?

Dave Hartnett: No.

Mr Raynsford: Thank you very much.

Q310 Guto Bebb: You were stating categorically at the outset that an MP is clearly not self-employed, so clearly an employee. On the issue of IPSA essentially providing office equipment and so forth, that would be in keeping with the position of most employees, I would argue.

Dave Hartnett: There is legislation that says that as well.

Q311 Guto Bebb: So why is the issue slightly difficult in terms of the response that you have given?

Dave Hartnett: To Mr Raynsford just now?

Guto Bebb: Yes.

Dave Hartnett: I think, Mr Bebb, for this reason. We are a bit short on facts, and what I didn’t want to do was give you an absolute answer until we knew what was being provided, but broadly I am offering a great deal of comfort on this issue.

Mary Aiston: The general proposition is that, of course, most, and probably all, employees have something provided by their employer, stereotypically a desk, a computer, a chair to sit on, and we never seek to go for a taxable benefit in relation to that, but because there is legislation to specifically take it out, and that is easy where it is in employer’s accommodation. It gets slightly more complicated where the employer is providing that sort of thing for somebody to use in their own home.

Guto Bebb: I can see that.

Mr Leigh: Where I hear a taxman saying, "I am providing a great deal of comfort"-

Chair: Do you think that is a good note on which to end? I think that is probably a good place to stop. Thank you very much indeed. Session closed.

Prepared 9th November 2011