Vir Cantium

I'm right, you know …

MP Expenses – the Fallout for the Man in the Street

So, various MPs from all sides (even the Lib Dems, who like to think they’re in the middle rather than to the left of Labour, as they actually are) have been caught with their snouts in the trough. Cue much hand wringing, squealing, weasel words and sudden discoveries of consciences. Oh, and an awful lot of blog posts and column inches.

Only good can come of this in the long term, surely? Like pruning, there may be apparent damage in the short term, but the plant – democracy in this case – will grow stronger as a result.

Well, sort of. What about the ordinary taxpayer? Fine, we the Treasury will get our money back, but what are the wider implications?

Let’s look at the so-called “flipping” of second and main homes. Some of the flipping has been contrived, for sure. Some has been genuine. The point is that flipping, in terms of capital gains tax (CGT) – which is the other taxpayer interest in the scandal, alongside the expenses claims themselves – is not restricted to just MPs. Anyone with two “homes” can switch the “only or main residence” (aka “Principle Private Residence”) nomination, thus taking advantage of various exemptions from CGT, which have survived while other areas of tax avoidance have been pursued as if those practising it were not far removed from the followers of Gary Glitter’s chosen hobby.

In the last few days the government has made noises about dealing with flipping and CGT – after all, the Finance Bill is progressing through the legislative process, so it could be done fairly quickly. MPs may still have the audacity to do nothing, or even to amend any anti-avoidance measures, but it is quite possible that the rules around flipping, as they are used by ordinary taxpayers, may still be tightened up. You may not have much sympathy with those who would lose out (even if they are, say, those who have inherited a second home but cannot sell it), but has the principle set out in IRC v Duke of Westminster (1936) – applicable to us all – not been eroded enough?

“… every man is entitled, if he can, to order his affairs so that the tax attaching under the appropriate Acts is less than it otherwise would be.”

After all, isn’t tax avoidance about playing by the rules but not in the spirit?

Yet there is also the wider question of expenses that have been declared as “wholly, exclusively and necessarily in the course of duties” per the Green Book. Many ordinary taxpayers will be familiar with the phrase as it underpins the rules around what employees can be reimbursed for without it counting as taxable income. Indeed, the great unwashed are penalised even further, finding that even fares or mileage between home and work cannot be reimbursed tax free, or claimed for tax relief.

This, at least is where the taxpayers may gain a benefit. Not that the rules will be relaxed for everyone – as if! Rather, with all the information now in the public domain, the length and costs of all those tax enquiries should be mitigated, and the new harsher penalty regime will bring in a few bob.


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