Should government ministers pay tax on free gifts and other perks they receive?

This is the question I get asked most often at the moment. There is another question as to whether they should accept such gifts, but that is a topic well covered elsewhere.

In a recent article, accountants at Blick Rothenberg called for all MPs to be taxed on gifts in the same way as other workers, which seems a reasonable suggestion.

HM Revenue and Customs (HMRC) responded: “We are committed to ensuring that everyone pays the right tax under the law, regardless of their wealth or status” – a position I suppose we can all be with. All right.

It turns out we don’t know whether ministers currently pay tax on some or all of these gifts. Individual tax matters are confidential. HMRC will never release the details, and unless those affected choose to release the information, we will not know the answer.

However, given all the media interest in this issue, one might have expected some voluntary disclosures from those who conscientiously disclosed the appropriate benefits and paid their taxes accordingly.

The question is whether the law requires ministers to pay taxes on these gifts and other benefits. Ministers are employees and, with a few exceptions, subject to the same tax rules as everyone else.

This is made clear in HMRC’s guidance for MPs and ministers. It states: “Under tax law, HMRC requires all taxable expenses to be included in the payroll and taxed by the Independent Parliamentary Standards Authority (IPSA).”

This process should therefore directly address claimed expenses, but what about gifts? These are not provided by their employer and are called third-party benefits.

There are provisions in the legislation which provide that these benefits granted to third parties are taxable, but this essentially depends on the facts. To take a common example, car dealership employees can sometimes win an award from the manufacturer for their sales performance. In these circumstances, the benefit remains taxable even if it is not paid by their employer.

HMRC manuals do not constitute the law, but rather instructions to tax inspectors on how they should apply the law as understood by HMRC. These therefore provide a useful guide for the public on how HMRC will act.

The tax treatment of benefits granted to third parties is explained in the EIM20503 manuals. It is emphasized that whether a third-party gift or other benefit is subject to tax depends on whether it arises “by reason of employment.”

This is where the analysis becomes tricky, as it can be very difficult to determine whether someone donating is doing so simply out of personal friendship or generosity, or whether the donation is related to their job. the recipient.

The HMRC handbook explains that the test covers cases where an employee would not have received the benefit if they had not held that job.

A recent court also noted: “Determining whether employment is one of the reasons will be an exercise in evaluating the available evidence and will depend on various circumstances, including the source of the benefit, the relationship, the law and expectations of the employer, the employee and the third party respectively.

My conclusion is that whether a gift is taxable will depend essentially on the expectations of the donor at the time of making it and the expectations of the Minister at the time of receiving it.

In the interests of government transparency, I think it would be helpful if those involved were clearer about this, but absent that, we will each have to draw our own conclusions.

Following recent revelations, a related topic of the moment is the tax situation of some ministers where expense claims have allegedly been made for fees paid when preparing their personal tax returns.

This is not a new problem. He featured prominently in 2009 in the MP’s expenses scandal exposed by The Telegraph. I remember it well because I helped the team at the time with the tax issues that surfaced.

The team that went through the documents found that more than 40 ministers, including the then chancellor Alistair Darling, had claimed expenses for accountants’ fees needed to prepare their self-assessment tax returns .

The day this was made public I was invited to call into BBC Radio 5 Live. The callers were all unhappy that, through their taxes, they were actually paying for ministers to benefit from this free service.

As a comment at the end of the program, I explained that at least we would get some of it back as a taxable benefit on their tax returns.

The following morning I was invited to join the Today program on BBC Radio 4 for a live interview on the same subject, interviewed by James Naughtie.

As I was being introduced, and without any warning, James read out a statement the BBC had received from Number 10 saying I was wrong and that ministers did not have to pay tax on these benefits.

I expressed surprise that everyone had to pay tax on these benefits to their employer, and wondered if ministers were benefiting from an unpublished concession.

Later that morning I received a call from Robert Winnett of the Telegraph, who led the team analyzing the expense reports. Very unusually, a representative from HMRC had called to tell him that Number 10’s comment was incorrect and that tax was in fact owed by ministers on these benefits.

He specifically asked the Telegraph to set the record straight, resulting in a front-page headline: “Ministers must pay, says taxman”. To my knowledge, this position has not changed.

In chapter 22 of the book No Expenses Spared, by Robert Winnett and Gordon Rayner of the Telegraph, Christopher Hope tells the full story.

Separately, it was also discovered that several of these tax returns had been prepared by the husband of Labor MP and former minister Meg Munn. What particularly angered the public was that she also received an invoice from her husband, which she then claimed against her expenses!

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